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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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<S> <C>
ABINGTON BANCORP
ABINGTON BANCORP, INC. CAPITAL TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS TRUST AGREEMENT)
MASSACHUSETTS DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
6712 6719
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER) (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
04-3334127 (APPLIED FOR)
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
536 WASHINGTON STREET
ABINGTON, MASSACHUSETTS 02351
(781) 982-3200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMES P. MCDONOUGH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ABINGTON BANCORP, INC.
536 WASHINGTON STREET
ABINGTON, MASSACHUSETTS 02351
(781) 982-3200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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PETER W. COOGAN, ESQ. REGINA M. PISA, P.C.
DAVID W. WALKER, ESQ. GOODWIN, PROCTER & HOAR LLP
FOLEY, HOAG & ELIOT LLP EXCHANGE PLACE
ONE POST OFFICE SQUARE BOSTON, MA 02109
BOSTON, MA 02109 (617) 570-1000
(617) 832-1000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ---------------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED UNIT PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
Preferred Securities of Abington
Bancorp Capital Trust.............. 1,265,000(1) $10.00 $12,650,000 $3,731.75
- ---------------------------------------------------------------------------------------------------------------------------------
Junior Subordinated Debentures of
Abington Bancorp, Inc. ............ $12,650,000(2) -- $12,650,000 --
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Guarantee of Abington Bancorp, Inc.
with respect to the Preferred
Securities......................... --(3) -- -- --
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(1) Includes 165,000 Preferred Securities which may be sold by Abington Bancorp
Capital Trust to cover over-allotments.
(2) The Junior Subordinated Debentures will be purchased by Abington Bancorp
Capital Trust with the proceeds of the sale of the Preferred Securities.
Such securities may later be distributed for no additional consideration to
the holders of the Preferred Securities of Abington Bancorp Capital Trust
upon its dissolution and the distribution of its assets.
(3) This Registration Statement is deemed to cover the Junior Subordinated
Debentures of Abington Bancorp, Inc., the rights of holders of Junior
Subordinated Debentures of Abington Bancorp, Inc. under the Indenture
covering the Junior Subordinated Debentures, and the rights of holders of
the Preferred Securities under the Trust Agreement, the Guarantee and the
Expense Agreement entered into by Abington Bancorp, Inc. No separate
consideration will be received for the Guarantee.
(4) The registration fee is calculated in accordance with Rule 457(n). Pursuant
to Rule 457(n) under the Securities Act, no separate registration fee is
payable for the Guarantee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
PART I. INFORMATION REQUIRED IN PROSPECTUS
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1998
PROSPECTUS
1,100,000 PREFERRED SECURITIES
ABINGTON BANCORP CAPITAL TRUST
% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY)
GUARANTEED, AS DESCRIBED HEREIN, BY
ABINGTON BANCORP, INC.
------------------------
$11,000,000 % JUNIOR SUBORDINATED DEBENTURES OF
ABINGTON BANCORP, INC.
------------------------
The % Cumulative Trust Preferred Securities (the "Preferred
Securities") offered hereby represent preferred undivided beneficial interests
in the assets of Abington Bancorp Capital Trust, a statutory business trust
created under the laws of the State of Delaware (the "Trust"). Abington Bancorp,
Inc., a Massachusetts corporation (the "Company"), will own all the common
securities (the "Common Securities" and, together with the Preferred Securities,
the "Trust Securities") representing undivided beneficial interests in the
assets of the Trust.
(Continued on next page)
Application has been made to have the Preferred Securities approved for
quotation on the Nasdaq National Market under the Symbol "ABBKP".
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENTAL AGENCY AND INVOLVE INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC COMMISSION(1) TRUST(2)
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<S> <C> <C> <C>
Per Preferred Security................ $10.00 (2) $10.00
- -----------------------------------------------------------------------------------------------------------------
Total(3).............................. $11,000,000 (2) $11,000,000
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</TABLE>
(1) The Company and the Trust have agreed to indemnify the Underwriters against
certain liabilities, including certain liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in the Junior Subordinated Debentures, the
Company, as issuer of the Junior Subordinated Debentures, has agreed to pay
the Underwriters, as compensation, $ per Preferred Security or
$ in the aggregate ($ if the over-allotment option is
exercised in full). See "Underwriting." The Company has also agreed to pay
the expenses of the offering estimated to be $ .
(3) The Trust has granted the Underwriters a 30-day option to purchase up to a
maximum of 165,000 additional Preferred Securities to cover over-allotments,
if any. If such option is exercised in full the total Price to Public,
Underwriting Commission and Proceeds to Trust will be $12,650,000, $[ ]
and $12,650,000, respectively. See "Underwriting."
------------------------
The Preferred Securities are being offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the Preferred Securities will be made on or about May , 1998.
TUCKER ANTHONY MCCONNELL, BUDD & DOWNES, INC.
INCORPORATED
The date of this Prospectus is , 1998.
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(Continued from the previous page)
State Street Bank and Trust Company is the Property Trustee (as defined
herein) of the Trust. The Trust exists for the purpose of issuing the Preferred
Securities and investing the proceeds thereof in an equivalent amount of %
Junior Subordinated Debentures (the "Junior Subordinated Debentures") of the
Company. The Junior Subordinated Debentures will mature on June 30, 2029, which
date may be shortened to a date not earlier than June 30, 2003 if certain
conditions are met (including, in the case of shortening the Stated Maturity (as
defined herein), the Company having received prior approval of the Board of
Governors of the Federal Reserve System ("Federal Reserve") to do so if then
required under applicable capital guidelines or policies of the Federal
Reserve). The Preferred Securities will have a preference over the Common
Securities under certain circumstances with respect to cash distributions and
amounts payable on liquidation, redemption or otherwise. See "Description of the
Preferred Securities -- Subordination of the Common Securities."
Holders of Preferred Securities are entitled to receive preferential
cumulative cash distributions, at the annual rate of % of the liquidation
amount of $10 per Preferred Security (the "Liquidation Amount"), accumulating
from , 1998, the date of original issuance, and payable quarterly
in arrears on the last day of March, June, September and December of each year,
commencing September 30, 1998 (the "Distributions"). The Company has the right,
so long as no Debenture Event of Default (as defined herein) has occurred and is
continuing, to defer payment of interest on the Junior Subordinated Debentures
at any time or from time to time for a period not to exceed 20 consecutive
quarters with respect to each deferral period (each, an "Extension Period");
provided that no Extension Period may extend beyond the Stated Maturity of the
Junior Subordinated Debentures. Upon the termination of any such Extension
Period and the payment of all amounts then due, the Company may elect to begin a
new Extension Period subject to the requirements set forth herein. If interest
payments on the Junior Subordinated Debentures are so deferred, Distributions on
the Preferred Securities will also be deferred, and the Company will not be
permitted, subject to certain exceptions described herein, to declare or pay any
cash distributions with respect to its capital stock or debt securities that
rank pari passu with or junior to the Junior Subordinated Debentures. DURING AN
EXTENSION PERIOD, INTEREST ON THE JUNIOR SUBORDINATED DEBENTURES WILL CONTINUE
TO ACCRUE (AND THE AMOUNT OF DISTRIBUTIONS TO WHICH HOLDERS OF THE PREFERRED
SECURITIES ARE ENTITLED WILL ACCUMULATE) AT THE RATE OF % PER ANNUM,
COMPOUNDED QUARTERLY, AND HOLDERS OF THE PREFERRED SECURITIES WILL BE REQUIRED
TO INCLUDE INTEREST INCOME IN THEIR GROSS INCOME FOR UNITED STATES FEDERAL
INCOME TAX PURPOSES IN ADVANCE OF RECEIPT OF THE CASH DISTRIBUTIONS WITH RESPECT
TO SUCH DEFERRED INTEREST PAYMENTS. UPON THE OCCURRENCE OF AN EXTENSION PERIOD,
A HOLDER OF PREFERRED SECURITIES THAT DISPOSES OF ITS PREFERRED SECURITIES
BETWEEN RECORD DATES FOR PAYMENTS OF DISTRIBUTIONS (AND CONSEQUENTLY DOES NOT
RECEIVE A DISTRIBUTION FROM THE TRUST FOR THE PERIOD PRIOR TO SUCH DISPOSITION)
WILL NEVERTHELESS BE REQUIRED TO INCLUDE ACCUMULATED BUT UNPAID INTEREST ON THE
JUNIOR SUBORDINATED DEBENTURES THROUGH THE DATE OF DISPOSITION IN INCOME AS
ORDINARY INCOME AND TO ADD SUCH AMOUNT TO ITS ADJUSTED TAX BASIS IN ITS PRO RATA
SHARE OF THE UNDERLYING JUNIOR SUBORDINATED DEBENTURES DEEMED DISPOSED OF. See
"Description of the Junior Subordinated Debentures -- Option to Extend Interest
Payment Period," "Certain Federal Income Tax Consequences -- Potential Extension
of Interest Payment Period and Original Issue Discount" and "-- Disposition of
Preferred Securities."
The Company and the Trust believe that, taken together, the obligations of
the Company under the Guarantee, the Trust Agreement, the Junior Subordinated
Debentures, the Indenture and the Expense Agreement (each as defined herein)
provide, in the aggregate, a full, irrevocable and unconditional guarantee, on a
subordinated basis, of all of the obligations of the Trust under the Preferred
Securities. See "Relationship Among the Preferred Securities, the Junior
Subordinated Debentures and the Guarantee -- Full and Unconditional Guarantee."
The Guarantee of the Company guarantees the payment of Distributions and
payments on liquidation or redemption of the Preferred Securities, but only in
each case to the extent of funds held by the Trust, as described herein. See
"Description of the Guarantee -- General." If the Company does not make interest
payments on the Junior Subordinated Debentures held by the Trust, the Trust will
have insufficient funds to pay Distributions on the Preferred Securities. The
Guarantee does not cover payments of Distributions when the Trust does not have
sufficient funds to pay such Distributions. In such event, a holder of Preferred
Securities may institute a legal proceeding directly against the Company
pursuant to the terms of the Indenture to enforce payments of amounts equal to
such Distributions to such holder. See "Description of
2
<PAGE> 5
the Junior Subordinated Debentures -- Enforcement of Certain Rights by Holders
of the Preferred Securities." The obligations of the Company under the Guarantee
and the Preferred Securities are subordinate and junior in right of payment to
all Senior Debt, Subordinated Debt and Additional Senior Obligations (each as
defined herein) of the Company. The Junior Subordinated Debentures are unsecured
obligations of the Company and are subordinated to all Senior Debt, Subordinated
Debt and Additional Senior Obligations of the Company.
The Preferred Securities are subject to mandatory redemption, in whole or
in part, upon repayment of the Junior Subordinated Debentures at maturity or
their earlier redemption. Subject to Federal Reserve approval, if then required
under applicable capital guidelines or policies of the Federal Reserve, the
Junior Subordinated Debentures are redeemable prior to maturity at the option of
the Company (i) on or after June 30, 2003, in whole at any time or in part from
time to time, or (ii) at any time, in whole (but not in part), within 180 days
following the occurrence of a Tax Event, a Capital Treatment Event or an
Investment Company Event (each as defined herein), in each case at a redemption
price equal to the accumulated and unpaid interest on the Junior Subordinated
Debentures so redeemed to the date fixed for redemption, plus 100% of the
principal amount thereof. See "Description of the Preferred
Securities -- Redemption or Exchange."
The Company intends to take the position that the Junior Subordinated
Debentures will be classified under current law as indebtedness of the Company
for United States federal income tax purposes and accordingly, the Company
intends to treat the interest payable by the Company on the Junior Subordinated
Debentures as deductible for United States federal income tax purposes. There is
no assurance that such position of the Company will not be challenged by the
Internal Revenue Service or, if challenged, that such a challenge will not be
successful. See "Risk Factors -- Proposed Tax Legislation."
The Company has the right at any time to dissolve the Trust, subject to the
Company having received prior approval of the Federal Reserve to do so if then
required under applicable capital guidelines or policies of the Federal Reserve.
In the event of the voluntary or involuntary dissolution of the Trust, after
satisfaction of liabilities to creditors of the Trust as required by applicable
law, the holders of Preferred Securities will be entitled to receive the
Liquidation Amount per Preferred Security, plus accumulated and unpaid
Distributions thereon to the date of payment, which may be in the form of a
Junior Subordinated Debenture having an aggregate principal amount equal to the
aggregate Liquidation Amount of such Preferred Securities (and carrying with it
accrued interest in an amount equal to the accumulated and unpaid Distributions
then due on such Preferred Securities), subject to certain exceptions. See
"Description of the Preferred Securities -- Redemption or Exchange" and
"-- Liquidation Distribution Upon Dissolution."
The Company will provide to the holders of the Preferred Securities
quarterly reports containing unaudited financial statements and annual reports
containing financial statements audited by the Company's independent auditors.
The Company will also furnish the Company's annual reports on Form 10-K and
quarterly reports on Form 10-Q free of charge to holders of the Preferred
Securities who so request in writing addressed to the Clerk of the Company.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTMENTS, STABILIZING TRANSACTIONS,
SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. SUCH TRANSACTIONS, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE PREFERRED
SECURITIES OFFERED HEREBY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE
103 OF REGULATION M. SEE "UNDERWRITING."
3
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ABINGTON BANCORP, INC.
[MAP OF OPERATIONS -- COMPANY TO PROVIDE]
4
<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus or incorporated herein
by reference. The discussion in this Prospectus contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act") and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act") that involve risks and uncertainties. The
Company's actual results and the timing of certain events may differ materially
from the results discussed in the forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in "Risk Factors." As used herein, (i) the "Indenture" means the
Indenture, to be dated as of , 1998, as amended and supplemented
from time to time, between the Company and State Street Bank and Trust Company,
as Debenture Trustee (the "Debenture Trustee"), relating to the Junior
Subordinated Debentures, (ii) the "Trust Agreement" means the Amended and
Restated Declaration of Trust relating to the Trust among the Company, as
Depositor, State Street Bank and Trust Company, as Property Trustee (the
"Property Trustee"), Wilmington Trust Company, as Delaware Trustee (the
"Delaware Trustee"), and the Administrative Trustees named therein
(collectively, with the Property Trustee and Delaware Trustee, the "Issuer
Trustees") and (iii) the "Guarantee" means the Guarantee Agreement relating to
the Preferred Securities between the Company and State Street Bank and Trust
Company, as Guarantee Trustee (the "Guarantee Trustee").
ABINGTON BANCORP, INC.
Abington Bancorp, Inc. (the "Company"), a Massachusetts corporation, is a
one-bank holding company doing business through a wholly-owned subsidiary,
Abington Savings Bank (the "Bank"). Abington Bancorp, Inc. was re-established as
the Bank's holding company on January 31, 1997. Previously, the Company's
predecessor, also known as Abington Bancorp, Inc., had served as the Bank's
holding company from February 1988 until its dissolution in December 1992.
The Bank operated as a Massachusetts-chartered mutual savings bank from its
incorporation in 1853 until June 1986 when the Bank converted from mutual to
stock form of ownership. From June 1986 to the present, the Bank has operated as
a stock savings bank.
The Bank is a community bank engaged principally in the business of
attracting deposits from the general public, borrowing funds and investing those
deposits and funds. In its investments, the Bank has emphasized various types of
residential and commercial real estate loans, residential construction loans,
consumer loans, and investments in securities. The Bank considers its principal
market area to be the towns in and around Plymouth County, Massachusetts.
The Company has grown to $549.8 million in assets and $333.2 million in
deposits at March 31, 1998 from $347.4 million in assets and $209.9 million in
deposits at December 31, 1993. Deposits are insured by the Bank Insurance Fund
of the Federal Deposit Insurance Corporation ("FDIC") up to FDIC limits
(generally $100,000 per depositor) and by the Depositors Insurance Fund of the
Mutual Savings Central Fund, Inc. (the "Depositors Insurance Fund" or "Central
Fund") for the portion of deposits in excess of that insured by the FDIC.
Acquisitions and branch openings are an important part of the Company's
ongoing strategy of planned growth which will enable the Company to have a
greater regional presence. On June 3, 1994, the Company acquired Hull
Co-Operative Bank by merger. On June 26, 1995, the Company acquired the deposits
and certain assets and other liabilities of the Holbrook branch of The First
National Bank of Boston. Additionally, in August 1997 and April 1998, the
Company opened the first two of three planned de novo supermarket branches, in
Cohasset and Randolph, with a branch in Hanson scheduled to open in the fall of
1998.
The Bank has three wholly-owned subsidiaries: Holt Park Place Development
Corporation and Norroway Pond Development Corporation, which own properties
being marketed for sale, and Abington Securities Corporation, which invests
primarily in United States Government obligations and obligations of related
agencies and equity securities.
5
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FINANCIAL SUMMARY
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AT OR FOR THE THREE
MONTHS ENDED
MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets.................. $549,838 $492,058 $531,986 $486,958 $460,492 $421,833 $347,354
Deposits................ 333,210 305,674 324,934 300,445 280,070 246,843 209,911
Stockholders' equity.... 34,584 33,835 36,321 33,546 30,561 28,366 27,869
Pre-tax income.......... 1,733 1,741 7,057 5,672 2,447+ 4,329 4,085
Net income.............. 1,136 1,052 4,378 3,533 1,429+ 2,743 2,529*
Net yield on average
earning assets,
taxable equivalent.... 3.17% 3.50% 3.41% 3.26% 3.30% 3.45% 3.55%
Return on average
equity................ 12.85% 12.50% 12.59% 11.00% 4.68%+ 9.23% 9.33%*
Return on average total
assets................ .85% .86% .87% .74% .33%+ .70% .76%*
</TABLE>
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+ Reflects sale in 1995 of approximately $9.2 million of loans, including
approximately $5.7 million of loans that were non-accrual at September 30,
1995, at a price approximately 64% of par. See Note 6 of Notes to Consolidated
Financial Statements in Appendix A to this Prospectus.
* Excludes the favorable impact of a $650,000 adjustment due to a change in
accounting for income taxes.
The Company has sought to consistently increase earnings per share and to
maximize return on equity through a combination of strategies, including:
Growth of Retail Deposit Franchise -- Management has demonstrated over the
past five years its desire and ability to grow the Company's retail deposit
franchise by acquiring other whole institutions or branches, broadening delivery
systems (supermarket branches) and products that are attractive to retail
customers (such as Totally Free Checking, first offered in March 1995) combined
with designing targeted marketing campaigns. The Bank has increased the number
of checking accounts to approximately 31,400 at March 31, 1998 from 7,000 at
December 31, 1994. Management currently intends to maintain these core
strategies for retail growth in the future as well as to develop or provide
access to other products and services to best serve the customers in its
community.
Expand Business Banking Activities -- Commencing in 1996, the Company
adopted a strategy to become a more active business lender and, as a result, to
achieve a greater diversification of assets on its balance sheet. Commercial and
commercial real estate loans are generally funded through deposit growth and/or
through runoff from the Company's investment portfolio. Since commercial and
commercial real estate loans typically carry a higher yield than investment
securities, it is anticipated that growth in these portfolios will enhance
overall levels of profitability. The Company's commercial and commercial real
estate portfolios totaled $49.4 million at March 31, 1998, compared to $29.2
million at December 31, 1996. While competition for good business credits has
intensified over the past six to 18 months, management believes that there is
still an opportunity to grow this aspect of the Company's franchise by providing
high-quality service to the small to medium-sized businesses located in the
Company's market area.
Efficient Capital Management -- The Company has made progress in providing
a more attractive return on equity over the past few years primarily as a result
of growth of the Company's loan and deposit portfolios, increases in customer
service fees and controlled growth of non-interest expenses. Additionally, in
each of 1997 and 1998, the Company's Board of Directors authorized the Company
to repurchase shares of its outstanding common stock from time to time at
prevailing market prices, up to a maximum of 10% of the shares outstanding in
each year (approximately 722,000 shares in the aggregate). See Note 19 of Notes
to Consolidated Financial Statements. As of May 5, 1998, the Company had
repurchased approximately 309,000 shares in total under the repurchase program
at a cost of approximately $5,181,000. The Company expects that its stock
repurchase programs will contribute to enhanced return on equity.
6
<PAGE> 9
Strategic Acquisitions -- The Company will continue to consider
opportunities for expansion through selective acquisitions as a means for
increasing market penetration, providing diversified financial service, and
achieving greater economies of scale. Since 1993, the Company has acquired two
branches with total deposits at time of purchase of approximately $49.3 million.
The Company's technology, operations and product offerings are also being
evaluated in connection with the assessment of growth opportunities.
The principal executive office of the Company is located at 536 Washington
Street, Abington, Massachusetts 02351 and its telephone number is (781)
982-3200.
ABINGTON BANCORP CAPITAL TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a trust agreement, dated as of , 1998, executed by the
Company, as depositor, and the trustees of the Trust (together with the Property
Trustee, the "Trustees"), and (ii) a certificate of trust filed with the
Secretary of State of the State of Delaware on , 1998. The initial
trust agreement will be amended and restated in its entirety (as so amended and
restated, the "Trust Agreement") substantially in the form filed as an exhibit
to the Registration Statement of which this Prospectus forms a part. The Trust
Agreement will be qualified as an indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). Upon issuance of the Preferred
Securities, the purchasers thereof will own all of the Preferred Securities. The
Company will acquire all of the Common Securities, which will represent an
aggregate liquidation amount equal to at least 3% of the total capital of the
Trust. The Common Securities will rank pari passu, and payments will be made
thereon pro rata, with the Preferred Securities, except that upon the occurrence
and during the continuance of an Event of Default (as defined herein) under the
Trust Agreement resulting from a Debenture Event of Default, the rights of the
Company as holder of the Common Securities to payment in respect of
Distributions and payments upon liquidation, redemption or otherwise will be
subordinated to the rights of the holders of the Preferred Securities. See
"Description of the Preferred Securities -- Subordination of Common Securities."
The Trust exists for the exclusive purposes of (i) issuing the Trust Securities
representing undivided beneficial interests in the assets of the Trust, (ii)
investing the gross proceeds of the Trust Securities in the Junior Subordinated
Debentures issued by the Company, and (iii) engaging in only those other
activities necessary, advisable, or incidental thereto. The Junior Subordinated
Debentures will be the only assets of the Trust and payments under the Junior
Subordinated Debentures will be the only revenue of the Trust. The Trust has a
term of 55 years, but may dissolve earlier as provided in the Trust Agreement.
The principal executive office of the Trust is c/o Abington Bancorp, Inc., 536
Washington Street, Abington, Massachusetts 02351, and its telephone number is
(781) 982-3200.
7
<PAGE> 10
THE OFFERING
Securities Offered............ 1,100,000 Preferred Securities having a
Liquidation Amount of $10 per Preferred
Security. The Preferred Securities represent
preferred undivided beneficial interests in the
assets of the Trust, which will consist solely
of the Junior Subordinated Debentures and
payments thereunder. The Trust has granted the
Underwriters an option, exercisable within 30
days after the date of the Offering, to
purchase up to an additional 165,000 Preferred
Securities at the initial offering price,
solely to cover over-allotments, if any.
Offering Price................ $10 per Preferred Security (Liquidation Amount
$10).
Distributions................. The Distributions payable on each Preferred
Security will be fixed at a rate per annum of
% of the Liquidation Amount of $10 per
Preferred Security, will be cumulative, will
accumulate from , 1998, the date
of original issuance of the Preferred
Securities, and will be payable quarterly in
arrears, on March 31, June 30, September 30 and
December 31 of each year, commencing September
30, 1998. See "Description of the Preferred
Securities -- Distributions -- Payment of
Distributions."
Junior Subordinated
Debentures.................... The Trust will invest the proceeds from the
issuance of the Preferred Securities and Common
Securities in an equivalent amount of %
Junior Subordinated Debentures of the Company.
The Junior Subordinated Debentures will mature
on June 30, 2029. The Junior Subordinated
Debentures will rank subordinate and junior in
right of payment to all Senior Debt and
Subordinated Debt of the Company. In addition,
the Company's obligations under the Junior
Subordinated Debentures will be structurally
subordinated to all existing and future
liabilities and obligations of its
subsidiaries.
Option to Extend Interest
Payment Period.............. The Company has the right, at any time, so long
as no Debenture Event of Default has occurred
and is continuing, to defer payments of
interest on the Junior Subordinated Debentures
for a period not exceeding 20 consecutive
quarters; provided, that no Extension Period
may extend beyond the Stated Maturity of the
Junior Subordinated Debentures. As a
consequence of the extension by the Company of
the interest payment period, quarterly
Distributions on the Preferred Securities will
be deferred (though such Distributions will
continue to accumulate with interest thereon
compounded quarterly, since interest will
continue to accrue and compound on the Junior
Subordinated Debentures) during any such
Extension Period. During an Extension Period,
the Company will be prohibited, subject to
certain exceptions described herein, from
declaring or paying any cash distributions with
respect to its capital stock or debt securities
that rank pari passu with or junior to the
Junior Subordinated Debentures. Upon the
termination of any Extension Period and the
payment of all amounts then due, the Company
may commence a new Extension Period, subject to
the foregoing requirements. See "Description of
the Preferred
Securities -- Distributions -- Extension
Period" and "Description of the Junior
Subordinated Debentures -- Option to Extend
Interest Pay-
8
<PAGE> 11
ment Period." Should an Extension Period occur,
holders of Preferred Securities will be
required to include deferred interest income in
their gross income for United States federal
income tax purposes in advance of receipt of
the cash distributions with respect to such
deferred interest payments. See "Certain
Federal Income Tax Consequences -- Potential
Extension of Interest Payment Period and
Original Issue Discount."
Redemption.................... The Preferred Securities are subject to
mandatory redemption, in whole or in part, upon
repayment of the Junior Subordinated Debentures
at maturity or their earlier redemption.
Subject to Federal Reserve approval, if then
required under applicable capital guidelines or
policies of the Federal Reserve, the Junior
Subordinated Debentures are redeemable prior to
maturity at the option of the Company (i) on or
after June 30, 2003, in whole at any time or in
part from time to time, or (ii) at any time, in
whole (but not in part), within 180 days
following the occurrence of a Tax Event, a
Capital Treatment Event or an Investment
Company Event, in each case at a redemption
price equal to 100% of the principal amount of
the Junior Subordinated Debentures, together
with any accrued but unpaid interest on the
Junior Subordinated Debentures to the date
fixed for redemption. See "Description of the
Junior Subordinated Debentures -- Redemption or
Exchange."
Ranking....................... The Preferred Securities will rank pari passu,
and payments thereon will be made pro rata,
with the Common Securities except as described
under "Description of the Preferred
Securities -- Subordination of the Common
Securities." The Junior Subordinated Debentures
will rank pari passu with all other Junior
Subordinated Debentures (if any) issued by the
Company (the "Other Debentures"), which are
issued and sold (if at all) to other trusts
established by the Company (if any), in each
case similar to the Trust ("Other Trusts"), and
will constitute unsecured obligations of the
Company and will rank subordinate and junior in
right of payment to all Senior Indebtedness to
the extent and in the manner set forth in the
Indenture. See "Description of the Junior
Subordinated Debentures." The Guarantee will
rank pari passu with all other guarantees (if
any) issued by the Company with respect to
Preferred Securities (if any) issued by Other
Trusts ("Other Guarantees") and will constitute
an unsecured obligation of the Company and will
rank subordinate and junior in right of payment
to all Senior Indebtedness to the extent and in
the manner set forth in the Guarantee
Agreement. See "Description of the Guarantee."
In addition, because the Company is a holding
company, the Junior Subordinated Debentures and
the Guarantee will be effectively subordinated
to all existing and future liabilities of the
Company's subsidiaries, including the Bank's
deposit liabilities. See "Description of the
Junior Subordinated Debentures --
Subordination."
Distribution of Junior
Subordinated Debentures..... The Company has the right at any time to
dissolve the Trust and cause the Junior
Subordinated Debentures, after satisfaction of
liabilities to creditors of the Trust as
required by applicable law, to
9
<PAGE> 12
be distributed to holders of Preferred
Securities in liquidation of the Trust, subject
to the Company having received prior approval
of the Federal Reserve to do so if then
required under applicable capital guidelines or
policies of the Federal Reserve. See
"Description of the Preferred
Securities -- Redemption or Exchange" and
"Description of the Preferred
Securities -- Liquidation Distribution Upon
Dissolution."
Guarantee..................... The Company has guaranteed the payment of
Distributions and payments on liquidation or
redemption of the Preferred Securities, but
only in each case to the extent of funds held
by the Trust, as described herein. The Company
and the Trust believe that, taken together, the
obligations of the Company under the Guarantee,
the Trust Agreement, the Junior Subordinated
Debentures, the Indenture and the Expense
Agreement provide, in the aggregate, a full,
irrevocable and unconditional guarantee, on a
subordinated basis, of all of the obligations
of the Trust under the Preferred Securities.
The obligations of the Company under the
Guarantee and the Preferred Securities are
subordinate and junior in right of payment to
all Senior Debt, Subordinated Debt and
Additional Senior Obligations of the Company.
If the Company does not make principal or
interest payments on the Junior Subordinated
Debentures, the Trust will not have sufficient
funds to make distributions on the Preferred
Securities. In such event, the Guarantee will
not apply to such Distributions until the Trust
has sufficient funds available therefor. See
"Description of the Guarantee."
Voting Rights................. The holders of the Preferred Securities will
have no voting rights except in limited
circumstances. See "Description of the
Preferred Securities -- Voting Rights;
Amendment of Trust Agreement."
Use of Proceeds............... All of the proceeds from the sale of the Trust
Securities will be invested by the Trust in the
Junior Subordinated Debentures. The Company
intends to use the net proceeds from the sale
of the Junior Subordinated Debentures for
general corporate purposes, including the
repurchase of outstanding equity securities of
the Company, contributions to the Bank to fund
its operations and the financing of one or more
future acquisitions by the Company if and when
suitable opportunities arise. Initially, the
net proceeds may be used to make investments in
investment securities and/or to pay down
outstanding debt. See "Use of Proceeds."
Nasdaq National Market
Symbol........................ Application has been made to have the Preferred
Securities approved for quotation on the Nasdaq
National Market under the symbol "ABBKP".
10
<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL DATA
OF ABINGTON BANCORP, INC.
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING RESULTS:
Net interest income.......................... $ 4,035 $ 4,053 $ 16,206 $ 14,815 $ 13,727 $ 12,733 $ 11,289
Provision for loan losses.................... 190 158 630 480 2,233 610 720
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision for
loan losses.............................. 3,845 3,895 15,576 14,335 11,494 12,123 10,569
Non-interest income.......................... 1,493 1,137 4,986 4,177 2,908 2,461 2,287
Non-interest expenses........................ 3,605 3,291 13,505 12,840 11,955 10,255 8,771
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes and cumulative
effect of accounting change................ 1,733 1,741 7,057 5,672 2,447 4,329 4,085
Provision for income taxes................... 597 689 2,679 2,139 1,018 1,586 1,556
--------- --------- --------- --------- --------- --------- ---------
Income before cumulative effect of accounting
change..................................... 1,136 1,052 4,378 3,533 1,429 2,743 2,529
Cumulative effect of accounting change....... -- -- -- -- -- -- 650
--------- --------- --------- --------- --------- --------- ---------
Net income................................... $ 1,136 $ 1,052 $ 4,378 $ 3,533 $ 1,429 $ 2,743 $ 3,179
========= ========= ========= ========= ========= ========= =========
Weighted average common shares outstanding,
basic...................................... 3,586,000 3,788,000 3,716,000 3,774,000 3,758,000 3,748,000 3,738,000
Weighted average common shares outstanding,
diluted.................................... 3,852,000 4,014,000 3,966,000 3,964,000 3,928,000 3,922,000 3,830,000
Net income per share before cumulative effect
of accounting change, basic(1)............. $ .32 $ .28 $ 1.18 $ .94 $ .38 $ .73 $ .68
Cumulative effect of accounting change....... -- -- -- -- -- -- .17
--------- --------- --------- --------- --------- --------- ---------
Basic earnings per share..................... $ .32 $ .28 $ 1.18 $ .94 $ .38 $ .73 $ .85
========= ========= ========= ========= ========= ========= =========
Net income per share before cumulative effect
of accounting change, diluted.............. $ .30 $ .26 $ 1.10 $ .89 $ .37 $ .70 $ .66
Cumulative effect of accounting change....... -- -- -- -- -- -- .17
--------- --------- --------- --------- --------- --------- ---------
Diluted earnings per share................... $ .30 $ .26 $ 1.10 $ .89 $ .37 $ .70 $ .83
========= ========= ========= ========= ========= ========= =========
Book value per common share.................. $ 9.70 $ 8.93 $ 9.99 $ 8.86 $ 8.11 $ 7.57 $ 7.45
========= ========= ========= ========= ========= ========= =========
Tangible book value per share(6)............. $ 8.82 $ 7.98 $ 9.08 $ 7.89 $ 7.05 $ 6.69 $ 7.23
========= ========= ========= ========= ========= ========= =========
CONSOLIDATED BALANCE SHEET DATA:
Total assets................................. $ 549,838 $ 492,058 $ 531,986 $ 486,958 $ 460,492 $ 421,833 $ 347,354
Total loans, net(2).......................... 341,380 300,137 330,792 298,970 260,585 235,614 199,807
Investment securities(3)..................... 50,406 33,337 47,187 31,950 33,343 28,328 15,915
Mortgage-backed investments.................. 129,637 132,180 126,016 131,184 138,937 133,882 113,052
Deposits..................................... 333,210 305,674 324,934 300,445 280,070 246,843 209,911
Borrowed funds............................... 176,260 147,836 165,910 147,524 145,609 134,155 106,921
Stockholders' equity......................... 34,584 33,835 36,321 33,546 30,561 28,366 27,869
PERFORMANCE RATIOS:
Net yield on average earning assets, taxable
equivalent................................. 3.17% 3.50% 3.41% 3.26% 3.30% 3.45% 3.55%
Average equity to average total assets....... 6.61% 6.88% 6.94% 6.69% 7.00% 7.61% 8.10%
Return on average stockholders' equity....... 12.85% 12.50% 12.59% 11.00% 4.68% 9.23% 11.73%
Return on average total assets............... .85% .86% .87% .74% .33% .70% .95%
Efficiency ratio(4).......................... 65.14% 63.12% 63.65% 66.95% 68.54% 65.43% 60.45%
NON-PERFORMING ASSETS AS A PERCENTAGE OF:
Total loans and real estate owned............ .23% .48% .29% .56% .68% 2.78% 3.84%
Total assets................................. .14% .30% .18% .34% .39% 1.58% 2.26%
ALLOWANCES FOR LOAN LOSSES AS A PERCENTAGE OF
NON-PERFORMING LOANS....................... 466.04% 182.29% 319.78% 154.52% 196.84% 52.67% 38.85%
NET LOAN CHARGE-OFFS AS A PERCENTAGE OF
AVERAGE OUTSTANDING LOANS.................. -- .03% .05% .04% 1.49% .18% .38%
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL RATIOS:
Leverage ratio............................... 5.46% 6.27% 6.01% 6.14% 5.77% 6.28% 7.80%
Total risk-based capital ratio............... 11.87% 13.57% 13.02% 13.65% 12.50% 13.53% 15.20%
RATIO OF EARNINGS TO FIXED CHARGES(5)
Including interest on deposits............... 1.32 1.36 1.35 1.29 1.13 1.30 1.33
Excluding interest on deposits............... 1.67 1.81 1.76 1.63 1.28 1.63 1.86
</TABLE>
- ---------------
(1) The Company declared a 2-for-1 stock split in the form of a dividend to
holders of record on November 14, 1997. All share and per-share amounts have
been adjusted to reflect the split.
(2) Total loans include loans held for sale.
(3) Includes Federal Home Loan Bank stock.
(4) Efficiency ratio equals non-interest expenses, exclusive of expenses
associated with other real estate owned, divided by the sum of net interest
income and non-interest income, net of gains or losses associated with other
real estate owned.
(5) For purposes of calculating the ratio of earnings to combined fixed charges,
earnings consist of income before taxes plus interest and rent expense.
Fixed charges consist of interest and rent expense.
(6) Tangible net book value equals stockholders' equity less intangible assets
divided by period ending common shares.
12
<PAGE> 15
RISK FACTORS
Prospective investors should carefully consider, together with the other
information contained and incorporated by reference in this Prospectus, the
following risk factors in evaluating the Company and its business and the Trust
before purchasing the Preferred Securities offered hereby. Prospective investors
should note, in particular, that certain statements contained or incorporated by
reference in this Prospectus, including, without limitation, statements
containing the words "believes," "anticipates," "intends," "expects" and words
of similar import, constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions in those areas in which the Company operates; demographic changes;
competition; fluctuations in interest rates; changes in business strategy or
development plans; changes in governmental regulation; credit quality; the
availability of capital to fund the expansion of the Company's business; and
other factors referenced in this Prospectus or incorporated by reference herein.
Given these uncertainties, prospective investors are cautioned not to place
undue reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the results of any
revisions to any of the forward-looking statements contained or incorporated by
reference herein to reflect future events or developments. The considerations
listed below represent certain important factors the Company believes could
cause such results to differ. These considerations are not intended to represent
a complete list of the general or specific risks that may affect the Company and
the Trust. It should be recognized that other risks may be significant,
presently or in the future, and the risks set forth below may affect the Company
and the Trust to a greater extent than indicated.
RISK FACTORS RELATING TO THE PREFERRED SECURITIES
ABILITY TO MAKE PAYMENTS ON THE PREFERRED SECURITIES AND JUNIOR SUBORDINATED
DEBENTURES
The Company is a legal entity separate and distinct from its subsidiaries,
including the Bank. The ability of the Trust to pay amounts due on the Preferred
Securities is solely dependent upon the Company making payments on the Junior
Subordinated Debentures as and when required. As a holding company without
significant assets other than its equity interest in the Bank, the Company's
ability to pay interest on the Junior Subordinated Debentures to the Trust (and
consequently, the Trust's ability to pay distributions on the Preferred
Securities and the Company's ability to pay its obligations under the Guarantee)
depends primarily on cash and liquid investments of the Company and upon cash
dividends the Company may receive in the future from the Bank. The Bank's
ability to pay dividends to the Company is restricted by Massachusetts state
law, which requires that retained earnings are available to pay such dividends.
At March 31, 1998, the Company had retained earnings of $34.6 million, of which
approximately $16.3 million were unrestricted and available for dividend
payments to the Company. At March 31, 1998, the Company had cash and liquid
investments of approximately $0.8 million. See "Use of Proceeds."
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES
The obligations of the Company under the Guarantee issued for the benefit
of the holders of Preferred Securities and under the Junior Subordinated
Debentures are unsecured and rank subordinate and junior in right of payment to
all Senior Debt, Subordinated Debt and Additional Senior Obligations of the
Company, whether now existing or hereafter incurred. At March 31, 1998, the
Company had no outstanding Senior Debt, Subordinated Debt or Additional Senior
Obligations. Because the Company is a holding company, the right of the Company
to participate in any distribution of assets of the Bank upon the Bank's
liquidation or reorganization or otherwise (and thus the ability of holders of
the Preferred Securities to benefit indirectly from such distribution) is
subject to the prior claims of creditors of the Bank, except to the extent that
the Company may itself be recognized as a creditor of the Bank. The Junior
Subordinated Debentures, therefore, will be effectively subordinated to all
existing and future liabilities of the Bank and holders of Junior
13
<PAGE> 16
Subordinated Debentures and Preferred Securities should look only to the assets
of the Company for payments on the Junior Subordinated Debentures. Neither the
Indenture, the Guarantee nor the Trust Agreement places any limitation on the
amount of secured or unsecured debt, including Senior Debt, Subordinated Debt
and Additional Senior Obligations, that may be incurred by the Company. See
"Description of the Guarantee -- Status of the Guarantee" and "Description of
the Junior Subordinated Debentures -- Subordination."
The ability of the Trust to pay amounts due on the Preferred Securities is
solely dependent upon the Company making payments on the Junior Subordinated
Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES; MARKET PRICE
CONSEQUENCES
The Company has the right under the Indenture, so long as no Debenture
Event of Default has occurred and is continuing, to defer the payment of
interest on the Junior Subordinated Debentures at any time or from time to time
for a period not exceeding 20 consecutive quarters with respect to each
Extension Period; provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. As a consequence of any such
deferral, quarterly Distributions on the Preferred Securities by the Trust will
be deferred (and the amount of Distributions to which holders of the Preferred
Securities are entitled will accumulate additional Distributions thereon at the
rate of % per annum, compounded quarterly from the relevant payment date
for such Distributions) during any such Extension Period. During any such
Extension Period, the Company may not (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock, (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of the Company that rank pari passu with or junior in interest
to the Junior Subordinated Debentures or make any guarantee payments with
respect to any guarantee by the Company of the debt securities of any subsidiary
of the Company if such guarantee ranks pari passu with or junior in interest to
the Junior Subordinated Debentures (other than payments under the Guarantee), or
(iii) redeem, purchase or acquire less than all of the Junior Subordinated
Debentures or any of the Preferred Securities. Prior to the termination of any
such Extension Period, the Company may further defer the payment of interest;
provided, that no Extension Period may exceed 20 consecutive quarters or extend
beyond the Stated Maturity of the Junior Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all interest then accrued
and unpaid (together with interest thereon at the annual rate of %
compounded quarterly, to the extent permitted by applicable law), the Company
may elect to begin a new Extension Period, subject to the above requirements.
Subject to the foregoing, there is no limitation on the number of times that the
Company may elect to begin an Extension Period. See "Description of the
Preferred Securities -- Distributions -- Extension Period" and "Description of
the Junior Subordinated Debentures -- Option to Extend Interest Payment Period."
Should an Extension Period occur, each holder of Preferred Securities will
be required to accrue and recognize income (in the form of original issue
discount ("OID")) in respect of its pro rata share of the interest accruing on
the Junior Subordinated Debentures held by the Trust for United States federal
income tax purposes. A holder of Preferred Securities must, as a result, include
such income in gross income for United States federal income tax purposes in
advance of the receipt of cash, and will not receive the cash related to such
income from the Trust if the holder disposes of the Preferred Securities prior
to the record date for the payment of the related Distributions. See "Certain
Federal Income Tax Consequences -- Potential Extension of Interest Payment
Period and Original Issue Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. Should the Company elect, however, to exercise such
right in the future, the market price of the Preferred Securities is likely to
be adversely affected. A holder that disposes of its Preferred Securities during
an Extension Period, therefore, might not receive the same return on its
investment as a holder that continues to hold its Preferred Securities. As a
result of the existence of the Company's right to defer interest payments, the
market price of the Preferred Securities may be more volatile than the market
prices of other securities on which original issue discount accrues that are not
subject to such optional deferrals.
14
<PAGE> 17
REDEMPTION DUE TO TAX EVENT, CAPITAL TREATMENT EVENT OR INVESTMENT COMPANY EVENT
The Company has the right to redeem the Junior Subordinated Debentures in
whole (but not in part) within 180 days following the occurrence of a Tax Event,
a Capital Treatment Event or an Investment Company Event (whether occurring
before or after June 30, 2003), and, therefore, cause a mandatory redemption of
the Preferred Securities. The exercise of such right is subject to the Company
having received prior approval of the Federal Reserve to do so if then required
under applicable capital guidelines or policies of the Federal Reserve.
"Tax Event" means the receipt by the Trust of an opinion of counsel
experienced in such matters to the effect that, as a result of any amendment to,
or change (including any announced prospective change) in the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Trust is, or will be within 90 days of the date
of such opinion, subject to United States federal income tax with respect to
income received or accrued on the Junior Subordinated Debentures, (ii) interest
payable by the Company on the Junior Subordinated Debentures is not, or, within
90 days of such opinion, will not be, deductible by the Company, in whole or in
part, for United States federal income tax purposes, or (iii) the Trust is, or
will be within 90 days of the date of the opinion, subject to more than a de
minimis amount of other taxes, duties or other governmental charges. The Company
must request and receive an opinion with regard to such matters within a
reasonable period of time after it becomes aware of the possible occurrence of
any of the events described in clauses (i) through (iii) above. See "-- Risk
Factors Relating to the Preferred Securities -- Proposed Tax Legislation" for a
discussion of certain legislative proposals that, if adopted, could give rise to
a Tax Event, which may permit the Company to cause a redemption of the Preferred
Securities prior to June 30, 2003.
"Capital Treatment Event" means the receipt by the Trust of an opinion of
counsel experienced in such matters to the effect that, as a result of any
amendment to or any change (including any announced prospective change) in the
laws (or any regulations thereunder) of the United States or any political
subdivision thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or which proposed change,
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk of impairment of the Company's ability to treat the aggregate
Liquidation Amount of the Preferred Securities (or any substantial portion
thereof) as "Tier 1 Capital" (or the then equivalent thereof) for purposes of
the capital adequacy guidelines of the Federal Reserve, as then applicable to
the Company; provided, however, that the inability of the Company to treat all
or any portion of the Liquidation Amount of the Preferred Securities as Tier 1
Capital shall not constitute the basis for a Capital Treatment Event if such
inability results from the Company having cumulative preferred capital in excess
of the amount which may qualify for treatment as Tier 1 Capital under applicable
capital adequacy guidelines of the Federal Reserve.
"Investment Company Event" means the receipt by the Trust of an opinion of
counsel experienced in such matters to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, the Trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), which change
becomes effective on or after the date of original issuance of the Preferred
Securities.
SHORTENING OF STATED MATURITY OF JUNIOR SUBORDINATED DEBENTURES
The Company has the right, at any time, to shorten the maturity of the
Junior Subordinated Debentures to a date not earlier than June 30, 2003. The
exercise of such right is subject to the Company having received prior approval
of the Federal Reserve if then required under applicable capital guidelines or
policies of the Federal Reserve. See "Description of the Junior Subordinated
Debentures -- General."
15
<PAGE> 18
RIGHTS UNDER THE GUARANTEE
The Guarantee guarantees to the holders of the Preferred Securities, to the
extent not paid by the Trust, (i) any accumulated and unpaid Distributions
required to be paid on the Preferred Securities, to the extent that the Trust
has funds available therefor at such time, (ii) the Redemption Price (as defined
herein) with respect to any Preferred Securities called for redemption, to the
extent that the Trust has funds available therefor at such time, and (iii) upon
a voluntary or involuntary dissolution, winding-up or liquidation of the Trust
(other than in connection with the distribution of Junior Subordinated
Debentures to the holders of Preferred Securities or a redemption of all of the
Preferred Securities), the lesser of (a) the amount of the Liquidation
Distribution (as defined herein), to the extent the Trust has funds available
therefor at such time, and (b) the amount of assets of the Trust remaining
available for distribution to holders of the Preferred Securities in liquidation
of the Trust. The holders of not less than a majority in Liquidation Amount of
the Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust power conferred
upon the Guarantee Trustee under the Guarantee. Any holder of the Preferred
Securities may institute a legal proceeding directly against the Company to
enforce its rights under the Guarantee without first instituting a legal
proceeding against the Trust, the Guarantee Trustee or any other Person (as
defined in the Guarantee). If the Company were to default on its obligation to
pay amounts payable under the Junior Subordinated Debentures, the Trust would
lack funds for the payment of Distributions or amounts payable on redemption of
the Preferred Securities or otherwise, and, in such event, holders of Preferred
Securities would not be able to rely upon the Guarantee for such amounts. In the
event, however, that a Debenture Event of Default has occurred and is continuing
and such event is attributable to the failure of the Company to pay interest on
or principal of the Junior Subordinated Debentures on the payment date on which
such payment is due and payable, then a holder of Preferred Securities may
institute a legal proceeding directly against the Company for enforcement of
payment to such holder of the principal of or interest on such Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities of such holder (a "Direct
Action"). The exercise by the Company of its right, as described herein, to
defer the payment of interest on the Junior Subordinated Debentures does not
constitute a Debenture Event of Default. In connection with such Direct Action,
the Company will have a right of set-off under the Indenture to the extent of
any payment made by the Company to such holder of Preferred Securities in the
Direct Action. Except as described herein, holders of Preferred Securities will
not be able to exercise directly any other remedy available to the holders of
the Junior Subordinated Debentures or assert directly any other rights in
respect of the Junior Subordinated Debentures. See "Description of the Junior
Subordinated Debentures -- Enforcement of Certain Rights by Holders of Preferred
Securities," "Description of the Junior Subordinated Debentures -- Debenture
Events of Default" and "Description of the Guarantee." The Trust Agreement
provides that each holder of Preferred Securities by acceptance thereof agrees
to the provisions of the Guarantee and the Indenture.
NO VOTING RIGHTS EXCEPT IN LIMITED CIRCUMSTANCES
Holders of Preferred Securities will have no voting rights except in
limited circumstances relating only to the modification of the Preferred
Securities and the exercise of the rights of the Trust as holder of the Junior
Subordinated Debentures and the Guarantee. Holders of Preferred Securities will
not be entitled to vote to appoint, remove or replace the Property Trustee or
the Delaware Trustee, as such voting rights are vested exclusively in the holder
of the Common Securities (except upon the occurrence of certain events described
herein). The Property Trustee, the Administrative Trustees and the Company may
amend the Trust Agreement without the consent of holders of Preferred Securities
to ensure that the Trust will be classified for United States federal income tax
purposes as a grantor trust even if such action adversely affects the interests
of such holders. See "Description of the Preferred Securities -- Voting Rights;
Amendment of Trust Agreement" and "Description of the Preferred
Securities -- Removal of the Trust Trustees."
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<PAGE> 19
PROPOSED TAX LEGISLATION
In both 1996 and 1997 legislation was proposed that would, if enacted, have
adversely affected the tax treatment of the Preferred Securities. On March 19,
1996, President Clinton proposed certain tax law changes (the "1996 Proposed
Legislation") that would, among other things, generally deny corporate issuers a
deduction for interest in respect of certain debt obligations having a maximum
term in excess of 20 years and not shown as indebtedness on the issuer's
applicable consolidated balance sheet. Neither the 1996 Proposed Legislation or
similar legislation was enacted during the 104th Congress. On February 6, 1997,
President Clinton proposed in the administration's fiscal year 1998 budget
certain tax law changes (the "Administration's 1997 Tax Proposals") that would,
among other things, generally deny corporate issuers a deduction for interest or
OID in respect of certain debt obligations having a maximum term in excess of 15
years and not shown as indebtedness on the issuer's applicable consolidated
balance sheet. Neither the Administration's 1997 Tax Proposals nor similar
legislation was enacted by the 105th Congress. There can be no assurance,
however, that legislation enacted after the date hereof will not adversely
affect the ability of the Company to deduct the interest payable on the Junior
Subordinated Debentures or otherwise give rise to a Tax Event.
REDEMPTION; EXCHANGE OF PREFERRED SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES
The Company has the right at any time to dissolve the Trust and cause the
Junior Subordinated Debentures, after satisfaction of liabilities to creditors
of the Trust, to be distributed to the holders of the Preferred Securities in
exchange therefor in liquidation of the Trust. The exercise of such right is
subject to the Company having received prior approval of the Federal Reserve if
then required under applicable capital guidelines or policies of the Federal
Reserve. The Company will have the right, in certain circumstances, to redeem
the Junior Subordinated Debentures in whole or in part, in lieu of a
distribution of the Junior Subordinated Debentures by the Trust, in which event
the Trust will redeem the Trust Securities on a pro rata basis to the same
extent as the Junior Subordinated Debentures are redeemed by the Company. Any
such distribution or redemption prior to the Stated Maturity will be subject to
prior approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve. See "Description of the Preferred
Securities -- Redemption or Exchange -- Tax Event Redemption, Capital Treatment
Event Redemption or Investment Company Event Redemption."
Under current United States federal income tax law, a distribution of
Junior Subordinated Debentures upon the dissolution of the Trust would not be a
taxable event to holders of the Preferred Securities. If, however, the Trust is
characterized as an association taxable as a corporation at the time of the
dissolution of the Trust, the distribution of the Junior Subordinated Debentures
may constitute a taxable event to holders of Preferred Securities. Moreover,
upon occurrence of a Tax Event, a dissolution of the Trust in which holders of
the Preferred Securities receive cash may be a taxable event to such holders.
See "Certain Federal Income Tax Consequences -- Receipt of Junior Subordinated
Debentures or Cash Upon Liquidation of the Trust."
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities upon a dissolution or liquidation of the
Trust. The Preferred Securities or the Junior Subordinated Debentures may trade
at a discount to the price that the investor paid to purchase the Preferred
Securities offered hereby. Because holders of Preferred Securities may receive
Junior Subordinated Debentures, prospective purchasers of Preferred Securities
are also making an investment decision with regard to the Junior Subordinated
Debentures and should carefully review all the information regarding the Junior
Subordinated Debentures contained herein.
If the Junior Subordinated Debentures are distributed to the holders of
Preferred Securities upon the liquidation of the Trust, the Company will use its
best efforts to list the Junior Subordinated Debentures on the Nasdaq National
Market or such stock exchanges, if any, on which the Preferred Securities are
then listed.
LIMITED COVENANTS
The covenants in the Indenture are limited, and there are no covenants
relating to the company in the Trust Agreement. As a result, neither the
Indenture nor the Trust Agreement protects holders of Junior Subordinated
Debentures, or Preferred Securities, respectively, in the event of a material
adverse change in
17
<PAGE> 20
the Company's financial condition or results of operations or limits the ability
of the Company or any subsidiary to incur additional indebtedness. Therefore,
the provisions of these governing instruments should not be considered a
significant factor in evaluating whether the Company will be able to comply with
its obligations under the Junior Subordinated Debentures or the Guarantee.
TRADING PRICE; ABSENCE OF PRIOR PUBLIC MARKET FOR THE PREFERRED SECURITIES
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest (or OID if the Junior
Subordinated Debentures are treated as having been issued, or reissued, with
OID) with respect to the underlying Junior Subordinated Debentures. A holder who
disposes of his Preferred Securities will be required to include in ordinary
income (i) any portion of the amount realized that is attributable to such
accrued but unpaid interest to the extent not previously included in income, or
(ii) any amount of OID, in either case, that has accrued on his pro rata share
of the underlying Junior Subordinated Debentures during the taxable year of sale
through the date of disposition. Any such income inclusion will increase the
holder's adjusted tax basis in his Preferred Securities disposed of. To the
extent that the amount realized in the sale is less than the holder's adjusted
tax basis, a holder will recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes. See "Certain Federal Income Tax
Consequences -- Disposition of Preferred Securities."
There is no current public market for the Preferred Securities. Although
application has been made to have the Preferred Securities approved for
quotation on the Nasdaq National Market, there can be no assurance that an
active public market will develop for the Preferred Securities or that, if such
market develops, the market price will equal or exceed the public offering price
set forth on the cover page of this Prospectus. The public offering price for
the Preferred Securities has been determined through negotiations between the
Company and the Underwriters. Prices for the Preferred Securities will be
determined in the marketplace and may be influenced by many factors, including
prevailing interest rates, the liquidity of the market for the Preferred
Securities, investor perceptions of the Company and general industry and
economic conditions.
POSSIBLE ADVERSE EFFECT ON MARKET PRICES
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities if a termination of the Trust were to occur.
Accordingly, the Preferred Securities or the Junior Subordinated Debentures may
trade at a discount from the price that investors paid to purchase the Preferred
Securities offered hereby. Because holders of Preferred Securities may receive
Junior Subordinated Debentures in liquidation of the Trust and because
Distributions are otherwise limited to payments on the Junior Subordinated
Debentures, prospective purchasers of the Preferred Securities are also making
an investment decision with regard to the Junior Subordinated Debentures and
should carefully review all the information regarding the Junior Subordinated
Debentures contained herein. See "Description of the Junior Subordinated
Debentures."
PREFERRED SECURITIES ARE NOT INSURED
The Preferred Securities are not insured by the Bank Insurance Fund (the
"BIF") or the Savings Association Insurance Fund (the "SAIF") of the Federal
Deposit Insurance Corporation (the "FDIC"), by the Depositors Insurance Fund
("DIF") of the Mutual Savings Central Fund, Inc., or by any other governmental
agency.
RISK FACTORS RELATING TO THE COMPANY AND ITS INDUSTRY
SENSITIVITY TO FLUCTUATIONS IN INTEREST RATES
The Company's profitability, like that of most similarly situated financial
institutions, is dependent to a large extent upon the Bank's net interest
income, which is the difference between its interest income on interest-earning
assets, such as loans and investments, and its interest expense on
interest-bearing liabilities,
18
<PAGE> 21
such as deposits and borrowings. Accordingly, the Company's results of
operations and financial condition are largely dependent on movements in market
interest rates and its ability to manage its assets in response to such
movements. The difference between the amount of the total interest-earning
assets and interest-bearing liabilities which reprice within a given time period
could have a negative effect on the Bank's net interest income depending on
whether such difference was positive or negative and the direction of movement
of interest rates.
Increases in interest rates may reduce demand for loans and, thus, the
amount of loan and commitment fees. In addition, fluctuations in interest rates
may also result in disintermediation, which is the flow of funds away from
depository institutions into direct investments which pay a higher rate of
return, and may affect the value of the Company's investment securities and
other interest earning assets. Given that the Bank's assets consist of a
substantial number of loans with interest rates which change in accordance with
changes in prevailing market rates, if interest rates rise sharply, many of the
Bank's borrowers would be required to make higher interest payments on their
loans. Thus, increases in interest rates may cause the Bank to experience an
increase in delinquent loans and defaults to the extent that borrowers are
unable to meet their increased debt servicing obligations. In addition, the Bank
has a substantial portfolio of fixed-rate loans that may be prepaid without
significant penalty, so that customers might prepay or refinance them in a
period of declining interest rates. That would alter the Bank's asset-liability
gap position and ultimately reduce the rates earned on those assets, as cash
flows from loan repayments would be re-invested at lower rates.
LENDING RISKS -- CREDIT QUALITY
A central focus of the Company's and the Bank's strategy is the continued
development and growth of a diversified loan portfolio, with emphasis on
residential real estate, commercial real estate, commercial loans, and second
mortgage and home equity loans. Certain risks are inherent in the lending
function, including a borrower's inability to pay, insufficient collateral
coverage and changes in interest rates. Repayment risk on commercial loans is
significantly affected by changing economic conditions in a particular
geographical area, business or industry which could impair future operating
performance. Risks associated with real estate loans and general business loans
include changes in general economic conditions which may affect the borrower's
ability to repay as well as underlying collateral values. Installment and other
consumer loans are subject to repayment risk.
Commercial real estate and multi-family residential loans are generally
viewed in the banking community as exposing the lender to greater credit risk
than 1-4 family residential real estate loans and typically involve higher loan
principal amounts. At March 31, 1998, the Bank's multi-family residential and
commercial real estate portfolios totaled $41.4 million, or 12.0% of total loans
and loans held for sale. Of that amount, less than 1.5% consisted of
multi-family residential loans.
The Bank currently originates loans secured by commercial real estate
properties. The Bank attempts to offset the risks associated with commercial
real estate lending by primarily lending to individuals who have proven
management experience and who will be actively involved in the management of the
property, and by making such loans with lower loan-to-value ratios than 1-4
family residential real estate loans. Economic events and government
regulations, which are outside the control of the borrower or lender, could
affect the value of the security for such loans or the future cash flow of the
affected properties.
At March 31, 1998, the Bank had $60,000 non-performing commercial real
estate and multi-family residential real estate loans. For the twelve months
ended December 31, 1997 and the three months ended March 31, 1998, the Bank
experienced charge-offs of $20,000 and $0, respectively, on commercial real
estate loans and multi-family residential real estate loans.
At March 31, 1998, 75.0% of the Bank's total loans and loans held for sale
were secured by first mortgages on 1-4 family residences, of which 27.6% were
adjustable rate mortgages ("ARMs"). Generally, ARMs pose credit risks different
from the risks inherent in fixed-rate loans because when interest rates rise the
borrower's payments rise, thereby increasing the potential for default. However,
long-term fixed-rate loans expose the Bank to higher interest-rate risk.
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<PAGE> 22
ALLOWANCE FOR LOAN LOSSES
The Bank has established an allowance for loan losses in accordance with
generally accepted accounting principles. The Company believes that the
allowance is adequate. Nevertheless, future additions to the allowance in the
form of the provision for loan losses may be necessary due to changes in
economic conditions and growth of the Bank's loan portfolio. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. An increase in the
Bank's provision for loan losses would negatively affect the Company's earnings.
COMPETITION
The Bank faces significant competition both in generating loans and in
attracting deposits. The eastern Massachusetts area is a highly competitive
market. The Bank faces direct competition from a significant number of financial
institutions operating in its market area, many with a state-wide or regional
presence and, in some cases, a national presence. Many of these financial
institutions are significantly larger and have greater financial resources than
the Bank. The Bank's competition for loans comes principally from commercial
banks, savings banks, mortgage banking companies, credit unions and insurance
companies. The Bank faces competition for deposits from savings and commercial
banks and credit unions. In addition, the Bank faces increasing competition for
deposits from non-bank institutions such as brokerage firms and insurance
companies in such instruments as short-term money market funds, corporate and
government securities funds, mutual funds and annuities. Competition may also
increase as a result of the lifting of restrictions on the interstate operations
of financial institutions.
SENSITIVITY TO LOCAL ECONOMY
Prevailing economic conditions, as well as government policies and
regulations concerning, among other things, monetary and fiscal affairs,
significantly affect the operations of financial institutions such as the Bank.
The New England region of the United States, including southeastern
Massachusetts (the Bank's primary market area) experienced a significant
economic decline which began in 1988 and outlasted the national recession. This
decline adversely affected employment, the real estate markets and the banking
industry in the Bank's market area. Any deterioration of economic conditions or
real estate markets in the Bank's market area could adversely affect the
financial condition and results of operations of the Bank in the future.
ECONOMIC CONDITIONS AND MONETARY POLICIES
Conditions beyond the Company's control may have a significant impact on
changes in net interest income from one period to another. Examples of such
conditions could include: (i) the strength of credit demands by customers; (ii)
fiscal and debt management policies of the federal government, including changes
in tax laws; (iii) the Federal Reserve's monetary policy, including the
percentage of deposits that must be held in the form of non-earning cash
reserves; (iv) the introduction and growth of new investment instruments and
transaction accounts by non-bank financial competitors; and (v) changes in rules
and regulations governing the payment of interest on deposit accounts.
LEGISLATIVE AND REGULATORY DEVELOPMENTS
The financial institutions industry is subject to significant regulation
which has materially affected the financial institutions industry in the past
and will do so in the future. Such regulations, which affect the Company on a
daily basis, may be changed at any time, and the interpretation of the relevant
law and regulations are also subject to change by the authorities who examine
the Company and the Bank and interpret those laws and regulations. There can be
no assurance that any present or future changes in the laws or regulations or in
their interpretation will not adversely and materially affect the Company.
POTENTIAL LIABILITY FOR UNDERCAPITALIZED SUBSIDIARY BANK
Under federal law, a bank holding company may be required to guarantee a
capital plan filed by an undercapitalized bank or thrift subsidiary with its
primary regulator. If the subsidiary defaults under the plan;
20
<PAGE> 23
the holding company may be required to contribute to the capital of the
subsidiary bank an amount equal to the lesser of 5% of the bank's assets at the
time it became undercapitalized or the amount necessary to bring the bank into
compliance with applicable capital standards. It is, therefore, possible that
the Company would be required to contribute capital to the Bank or any other
bank it may acquire in the event that the Bank or such other bank becomes
undercapitalized.
YEAR 2000 COMPLIANCE
During 1997 the Company completed an assessment of the majority of its
computer systems to identify the systems that could be affected by the "Year
2000" issue and developed an implementation plan to address the issue. The Year
2000 problem is the result of computer programs being written using two digits
rather than four to define the applicable year. Any of the Company's programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a major system failure or
miscalculations. The Company's various systems generally operate on software
which is provided and maintained by outside vendors, many of whom are larger,
well-established companies who are well-known and established in the banking
industry. At this time, the Company does not anticipate incurring significant
costs related to the year 2000 problem as currently the Company is highly
reliant on the efforts of those outside vendors. The Company does, however,
anticipate an increase in the amount of time management and staff will devote to
closely monitor the progress of these vendors and also testing applications. The
Company has a Year 2000 Compliance Committee of its Board of Directors, charged
with supervising the plan and reporting to the full Board. There can be no
assurance that the systems of other companies on which the Company's systems
rely also will be timely converted or that any such failure to convert by
another company would not have an adverse effect on the Company's systems.
ABINGTON BANCORP, INC.
Abington Bancorp, Inc. (the "Company"), a Massachusetts corporation, is a
one-bank holding company doing business through a wholly-owned subsidiary,
Abington Savings Bank (the "Bank"). Abington Bancorp, Inc. was re-established as
the Bank's holding company on January 31, 1997. Previously, the Company's
predecessor, also known as Abington Bancorp, Inc., had served as the Bank's
holding company from February 1988 until its dissolution in December 1992.
The Bank operated as a Massachusetts-chartered mutual savings bank from its
incorporation in 1853 until June 1986 when the Bank converted from mutual to
stock form of ownership. From June 1986 to the present, the Bank has operated as
a stock savings Bank.
The Bank is a community bank engaged principally in the business of
attracting deposits from the general public, borrowing funds and investing those
deposits and funds. In its investments, the Bank has emphasized various types of
residential and commercial real estate loans, residential construction loans,
consumer loans, and investments in securities. The Bank considers its principal
market area to be the towns in and around Plymouth County, Massachusetts.
The Company has grown to $549.8 million in assets and $333.2 million in
deposits at March 31, 1998 from $347.4 million in assets and $209.9 million in
deposits at December 31, 1993 . Deposits are insured by the Bank Insurance Fund
of the Federal Deposit Insurance Corporation ("FDIC") up to FDIC limits
(generally $100,000 per depositor) and by the Depositors Insurance Fund of the
Mutual Savings Central Fund, Inc. (the "Depositors Insurance Fund" or "Central
Fund") for the portion of deposits in excess of that insured by the FDIC.
On June 3, 1994, the Company acquired Hull Co-Operative Bank by merger. On
June 26, 1995, the Company acquired the deposits and certain assets and other
liabilities of the Holbrook branch of The First National Bank of Boston.
Additionally, in August 1997 and April 1988, the Company also opened the first
two of three planned de novo supermarket branches, in Cohasset and Randolph,
with a branch in Hanson scheduled to open in the fall of 1998. These
acquisitions and branch openings are consistent with the
21
<PAGE> 24
Company's ongoing strategy of planned growth which will enable the Company to
have a greater regional presence.
The Bank has three wholly-owned subsidiaries: Holt Park Place Development
Corporation and Norroway Pond Development Corporation, which own properties
being marketed for sale, and Abington Securities Corporation, which invests
primarily in United States Government obligations and obligations of related
agencies and equity securities.
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED
MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets................. $549,838 $492,058 $531,986 $486,958 $460,492 $421,833 $347,354
Deposits............... 333,210 305,674 324,934 300,445 280,070 246,843 209,911
Stockholders' equity... 34,584 33,835 36,321 33,546 30,561 28,366 27,869
Pre-tax income......... 1,733 1,741 7,057 5,672 2,447+ 4,329 4,085
Net income............. 1,136 1,052 4,378 3,533 1,429+ 2,743 2,529*
Net yield on average
earning assets,
taxable equivalent... 3.17% 3.50% 3.41% 3.26% 3.30% 3.45% 3.55%
Return on average
equity............... 12.85% 12.50% 12.59% 11.00% 4.68%+ 9.23% 9.33%*
Return on average total
assets............... .85% .86% .87% .74% .33%+ .70% .76%*
</TABLE>
- ---------------
+ Reflects sale in 1995 of approximately $9.2 million of loans, including
approximately $5.7 million of loans that were non-accrual at September 30,
1995, at a price approximately 64% of par. See Note 6 of Notes to Consolidated
Financial Statements in Appendix A to this Prospectus.
* Excludes the favorable impact of a $650,000 adjustment due to a change in
accounting for income taxes.
The Company has sought to consistently increase earnings per share and to
maximize return on equity through a combination of strategies, including:
Growth of Retail Deposit Franchise -- Management has demonstrated over the
past five years its desire and ability to grow the Company's retail deposit
franchise by acquiring other whole institutions or branches, broadening delivery
systems (supermarket branches) and products that are attractive to retail
customers (such as Totally Free Checking, first offered in March 1995) combined
with designing targeted marketing campaigns. The Bank has increased the number
of checking accounts to approximately 31,400 at March 31, 1998 from 7,000 at
December 31, 1994. Management currently intends to maintain these core
strategies for retail growth in the future as well as to develop or provide
access to other products and services to best serve the customers in its
community.
Expand Business Banking Activities -- Commencing in 1996, the Company
adopted a strategy to become a more active business lender and, as a result, to
achieve a greater diversification of assets on its balance sheet. Commercial and
commercial real estate loans are generally funded through deposit growth and/or
through runoff from the Company's investment portfolio. Since commercial and
commercial real estate loans typically carry a higher yield than investment
securities, it is anticipated that growth in these portfolios will enhance
overall levels of profitability. The Company's commercial and commercial real
estate portfolios totaled $49.4 million at March 31, 1998, compared to $29.2
million at December 31, 1996. While competition for good business credits has
intensified over the past six to 18 months, management believes that there is
still an opportunity to grow this aspect of the Company's franchise by providing
high-quality service to the small to medium-sized businesses located in the
Company's market area.
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<PAGE> 25
Efficient Capital Management -- The Company has made progress in providing
a more attractive return on equity over the past few years primarily as a result
of growth of the Company's loan and deposit portfolios, increases in customer
service fees and controlled growth of non-interest expenses. Additionally, in
each 1997 and 1998, the Company's Board of Directors authorized the Company to
repurchase its outstanding common stock from time to time at prevailing market
prices, up to a maximum of 10% of the shares outstanding in each year
(approximately 722,000 shares in the aggregate). See Note 19 of Notes to
Consolidated Financial Statements. As of May 5, 1998, the Company had
repurchased approximately 309,000 shares in total under the repurchase program
at a cost of approximately $5,181,000. The Company expects that stock repurchase
programs will contribute to enhance return in equity.
Strategic Acquisitions -- The Company will continue to consider
opportunities for expansion through selective acquisitions as a means for
increasing market penetration, providing diversified financial service, and
achieving greater economies of scale. Since 1993, the Company has acquired two
branches with total deposits at time of purchase of approximately $49.3 million.
The Company's technology, operations and product offerings are also being
evaluated in connection with the assessment of growth opportunities.
The principal executive office of the Company is located at 536 Washington
Street, Abington, Massachusetts 02351 and its telephone number is (781)
982-3200.
MANAGEMENT
The executive officers of the Company and the Bank and the principal
occupation and business experience during at least the last five years for each
are set forth below.
JAMES P. MCDONOUGH has been President and Chief Executive Officer of the
Company since its incorporation on October 15, 1996. Mr. McDonough has also
served as President and Chief Executive Officer of the Bank since August 1991.
Previously, he served as President and Chief Operating Officer of the Bank from
November 1990 to August 1991 and Senior Vice President -- Lending of the Bank
from December 1987 to November 1990. Mr. McDonough was also Vice
President -- Regional Manager of GEM Mortgage Corporation of North America from
1983 to 1987. Mr. McDonough is a graduate of Massasoit Community College and
Boston State College. Mr. McDonough is 47 years old.
EDWARD J. MERRITT has been Executive Vice President of the Bank since
September 1993. He was Treasurer of the Company since its incorporation on
October 15, 1996 until June 1997 and Executive Vice President and Chief
Financial Officer of the Bank from September 1993 until June 1997. Prior to that
date, he served as Senior Vice President and Chief Financial Officer of the Bank
from June 1991 to September 1993 and Treasurer and Chief Financial Officer of
the Bank from July 1986 to June 1991. Previously, he held various positions,
including Senior Accountant and Supervisor, at Wolf & Company of Massachusetts,
P.C., from 1983 to 1986. Mr. Merritt is a graduate of Salem State College and is
a Certified Public Accountant. Mr. Merritt is 38 years old.
MARIO M. BERLINGHIERI has been Senior Vice President -- Business Banking
Division of the Bank since January 29, 1996. Prior to that date, he served as
Program Manager of the Executive Office of Communities & Development for The
Commonwealth of Massachusetts in 1995; Vice President and Senior Risk Manager of
Fleet Bank of Massachusetts in charge of commercial portfolio approval from 1992
to 1994; and Regional Manager -- Boston Small Business Lending for Bank of New
England from 1990 to 1992. Mr. Berlinghieri is a graduate of Suffolk University
with a B.S.B.A. degree in Banking/Finance and an M.B.A. in Business
Administration. Mr. Berlinghieri is 48 years old.
DONNA L. THAXTER has been Senior Vice President -- Consumer Banking
Division of the Bank since December 1993. Prior to that date, she was Vice
President -- Retail Banking since August 1992. Ms. Thaxter joined the Bank in
January 1988 and has held various positions including Production Manager,
Commercial Loan Officer and Compliance Officer. Previously, she worked as
Underwriting Manager for GEM Mortgage Corporation of North America from 1984 to
1988. Ms. Thaxter is a graduate of Framingham State College. Ms. Thaxter is 37
years old.
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<PAGE> 26
ROBERT M. LALLO has been Treasurer of the Company and Senior Vice
President -- Treasurer and Chief Financial Officer of the Bank since June 1997.
Prior to that date, he served as Vice President and Treasurer since he joined
the Bank in October 1993 until June 1997. Previously, he held various positions,
including Audit Manager, with Arthur Andersen & Co., currently known as Arthur
Andersen LLP, from July 1986 to October 1993. Mr. Lallo is a graduate of Boston
College with degrees in both Accounting and Finance and is a Certified Public
Accountant. Mr. Lallo is 33 years old.
In addition, to Mr. McDonough, the Directors of the Company are:
ROBERT J. ARMSTRONG has been President and General Manager of Armstrong
Construction Corporation, a home building firm, since 1952.
BRUCE G. ATWOOD has been Vice President -- Operations and Treasurer of Hyer
Industries, Inc., a manufacturer of industrial scales, since 1978.
WILLIAM F. BORHEK has been President of Wm. F. Borhek Insurance Agency,
Inc., a general insurance agency, since 1964.
RALPH B. CARVER, JR. has been President, Treasurer and a director of
Den-Lea Rental, Inc., a truck leasing company, since 1979.
JOEL S. GELLER is the owner-manager and a director of Abington Liquors
Corp., a retail liquor store.
RODNEY D. HENRIKSON has been Treasurer of Henrikson Realty Corp., a real
estate company, since 1986. He was Treasurer of Henrikson's Dairy, Inc., a food
processing and distribution company, from 1982 through 1984 and President from
1984 through 1986.
A. STANLEY LITTLEFIELD is an attorney in private practice in Rockland,
Massachusetts. He was formerly District Attorney of Plymouth County.
JAY TIMOTHY NOONAN has been with J. P. Noonan Trans., Inc., an interstate
hauler, in a management capacity since 1968 and is currently Chief Financial
Officer. Mr. Noonan was also President of Rourke Coal and Oil Co. from 1960 to
1989.
GORDON N. SANDERSON has been retired since 1991. From 1970 to 1991, he was
Vice President -- Sales of B & W Press, Inc., a specialty printing company.
JAMES J. SLATTERY has been President of J. H. Slattery Insurance Agency,
Inc., Abington, Massachusetts, an independent insurance agency, since 1958.
WAYNE P. SMITH is Treasurer and a director of Suburban Enterprises Inc.,
Abington, Massachusetts, a sales and marketing firm.
ABINGTON BANCORP CAPITAL TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a trust agreement, dated as of , 1998, executed by the
Company, as depositor, and the trustees of the Trust, and (ii) a certificate of
trust filed with the Secretary of State of the State of Delaware on
, 1998. The initial trust agreement will be amended and restated
in its entirety (as so amended and restated, the "Trust Agreement")
substantially in the form filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The Trust Agreement will be qualified as an
indenture under the Trust Indenture Act. Upon issuance of the Preferred
Securities, the purchasers thereof will own all of the Preferred Securities. The
Company will acquire all of the Common Securities, which will represent an
aggregate liquidation amount equal to at least 3% of the total capital of the
Trust. The Common Securities will rank pari passu, and payments will be made
thereon pro rata, with the Preferred Securities, except that upon the occurrence
and during the continuance of an Event of Default (as defined herein) under the
Trust Agreement resulting from a Debenture Event of Default, the rights of the
Company as holder of the Common Securities to payment in respect of
Distributions and payments upon liquidation, redemption or otherwise will be
subordinated to the rights of the holders of the Preferred Securities. See
"Description of the Preferred Securities -- Subordination
24
<PAGE> 27
of Common Securities." The Trust exists for the exclusive purposes of (i)
issuing the Trust Securities representing undivided beneficial interests in the
assets of the Trust, (ii) investing the gross proceeds of the Trust Securities
in the Junior Subordinated Debentures issued by the Company, and (iii) engaging
in only those other activities necessary, advisable, or incidental thereto. The
Junior Subordinated Debentures and payments thereunder will be the only assets
of the Trust and payments under the Junior Subordinated Debentures will be the
only revenue of the Trust. The Trust has a term of 55 years, but may dissolve
earlier as provided in the Trust Agreement. The principal executive office of
the Trust is c/o Abington Bancorp, Inc., 536 Washington Street, Abington,
Massachusetts 02351, and its telephone number is (781) 982-3200.
The number of Trustees will, pursuant to the Trust Agreement, initially be
five. Three of the Trustees (the "Administrative Trustees") will be persons who
are employees or officers of, or who are affiliated with, the Company. The
fourth trustee will be a financial institution that is unaffiliated with the
Company, which trustee will serve as institutional trustee under the Trust
Agreement and as indenture trustee for the purposes of compliance with the
provisions of the Trust Indenture Act (the "Property Trustee"). State Street
Bank and Trust Company, a state chartered trust company organized under the laws
of the Commonwealth of Massachusetts, will be the Property Trustee until removed
or replaced by the holder of the Common Securities. For purposes of compliance
with the provisions of the Trust Indenture Act, State Street Bank and Trust
Company will also act as trustee (the "Guarantee Trustee") under the Guarantee
and as Debenture Trustee (as defined herein) under the Indenture. The fifth
trustee will be an entity that maintains its principal place of business in the
State of Delaware (the "Delaware Trustee"). Wilmington Trust Company, a Delaware
banking corporation, will act as Delaware Trustee.
The Property Trustee will hold title to the Junior Subordinated Debentures
for the benefit of the holders of the Trust Securities and in such capacity will
have the power to exercise all rights, powers and privileges under the
Indenture. The Property Trustee will also maintain exclusive control of a
segregated non-interest-bearing bank account (the "Property Account") to hold
all payments made in respect of the Junior Subordinated Debentures for the
benefit of the holders of the Trust Securities. The Property Trustee will make
payments of Distributions and payments on liquidation, redemption and otherwise
to the holders of the Trust Securities out of funds from the Property Account.
The Guarantee Trustee will hold the Guarantee for the benefit of the holders of
the Preferred Securities. The Company, as the holder of all the Common
Securities, will have the right to appoint, remove or replace any Trustee and to
increase or decrease the number of Trustees. The Company will pay all fees and
expenses related to the Trust and the offering of the Trust Securities.
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the Trust
Agreement, the Delaware Business Trust Act (the "Trust Act") and the Trust
Indenture Act. See "Description of the Preferred Securities."
25
<PAGE> 28
USE OF PROCEEDS
The Trust will use the gross proceeds from the sale of the Preferred
Securities to purchase Junior Subordinated Debentures of the Company. The
Company intends to use the net proceeds of the sale of the Junior Subordinated
Debentures for general corporate purposes, including the repurchase of
outstanding equity securities of the Company, contributions to the Bank to fund
its operations and the financing of one or more future acquisitions by the
Company if and when suitable opportunities arise. Initially, the net proceeds
may be used to make investments in investment securities and/or to pay down
outstanding borrowings from the Federal Home Loan Bank pending its use for the
purposes described above.
The Federal Reserve has approved, subject to certain limitations as to
amount, the use of certain cumulative preferred stock instruments such as the
Preferred Securities as Tier 1 capital for bank holding companies such as the
Company. The Company has elected to issue the Preferred Securities because the
Company expects the Preferred Securities to qualify as Tier 1 capital and the
Distributions payable on the Preferred Securities to be a tax deductible expense
of the Company. The Company expects that, upon completion of the sale of the
Preferred Securities offered hereby (and assuming exercise of the over-allotment
option in full), Preferred Securities having an aggregate Liquidation Amount of
approximately $9.8 million will be eligible to qualify as Tier 1 capital under
the capital guidelines of the Federal Reserve. Preferred Securities representing
an aggregate Liquidation Amount in excess of that amount are expected to be
treated as Tier 2 capital until all or some of that excess is eligible to
qualify as Tier 1 capital under the capital guidelines of the Federal Reserve.
MARKET FOR THE PREFERRED SECURITIES
Application has been made to have the Preferred Securities approved for
quotation on the Nasdaq National Market under the symbol ABBKP. Although the
Underwriters have informed the Company that they currently intend to make a
market in the Preferred Securities, there can be no assurance that an active and
liquid trading market will develop, or, if developed, that such a market will
continue. The offering price and distribution rate have been determined by
negotiations among representatives of the Company and the Underwriters, and the
offering price of the Preferred Securities may not be indicative of the market
price following the offering. See "Underwriting."
ACCOUNTING TREATMENT
The Trust will be treated, for financial reporting purposes, as a
subsidiary of the Company and, accordingly, the accounts of the Trust will be
included in the consolidated financial statements of the Company. The Preferred
Securities will be presented as a separate category in the consolidated balance
sheet of the Company under the caption "Guaranteed Preferred Beneficial
Interests in the Company's Junior Subordinated Debentures," and appropriate
disclosures about the Preferred Securities, the Guarantee and the Junior
Subordinated Debentures will be included in the notes to consolidated financial
statements. The Company will record Distributions payable on the Preferred
Securities as an expense in the consolidated statements of income for financial
reporting purposes.
All future reports of the Company filed under the Exchange Act will (a)
present the Trust Securities issued by the Trust on the balance sheet as a
separate category item entitled "Guaranteed Preferred Beneficial Interests in
the Company's Junior Subordinated Debentures," (b) include in a footnote to the
financial statements disclosure that the sole assets of the Trust are the Junior
Subordinated Debentures (including the outstanding principal amount, interest
rate and maturity date of such Junior Subordinated Debentures), and (c) include
in an audited footnote to the financial statements disclosure that the Company
owns all the Common Securities of the Trust, and that the back-up obligations,
in the aggregate, constitute a full and unconditional guarantee by the Company
of the obligations of the Trust under the Preferred Securities.
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<PAGE> 29
CAPITALIZATION
The following table sets forth (i) the consolidated capitalization of the
Company at March 31, 1998 and (ii) the consolidated capitalization of the
Company giving effect to the issuance of the Preferred Securities hereby offered
by the Trust and receipt by the Company of the net proceeds from the
corresponding sale of the Junior Subordinated Debentures to the Trust, as if the
sale of the Preferred Securities had been consummated on March 31, 1998 and
assuming the Underwriters' over-allotment option was not exercised.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------
AS
ACTUAL ADJUSTED
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Guaranteed preferred beneficial interests in the Company's
Junior Subordinated Debentures............................ $ 0 $11,000(1)
STOCKHOLDERS' EQUITY:
Serial Preferred stock, par value $0.10 per share;
3,000,000 shares authorized; none issued............... -- --
Common stock, par value $0.10 per share; 12,000,000 shares
authorized; 4,747,000 shares issued and outstanding,
actual and as adjusted................................. 475 475
Additional paid-in capital................................ 21,367 21,367
Retained earnings......................................... 20,458 20,458
Treasury stock at cost.................................... (8,884) (8,884)
Unearned compensation -- ESOP............................. (210) (210)
Other Accumulated Comprehensive Income --
Net unrealized gain on securities available for sale, net
of taxes............................................... 1,378 1,378
------- -------
Total stockholders' equity........................ 34,584 34,584
------- -------
Total capitalization.............................. $34,584 $45,584
======= =======
CAPITAL RATIOS:
Stockholders' equity to total assets...................... 6.29% 6.17%
Leverage-based capital ratio(2)(3)(4)..................... 5.46% 6.98%
Risk-based capital ratios(3)(4):
Tier 1 capital to risk-weighted assets............ 10.97% 13.74%
Total risk-based capital to risk-weighted
assets........................................... 11.87% 15.03%
</TABLE>
- ---------------
(1) In connection with the issuance of the guaranteed preferred beneficial
interests in the Company's Junior Subordinated Debentures, the Company
estimates it will incur expenses of $ (including Underwriters'
compensation of $ ). The Junior Subordinated Debentures will mature
on June 30, 2029, which date may be shortened to a date not earlier than
June 30, 2003, if certain conditions are met.
(2) The leverage ratio is Tier 1 capital divided by average quarterly assets,
after deducting intangible assets and deferred tax assets in excess of
regulatory maximum limits.
(3) The capital ratios, as adjusted, are computed including the total estimated
net proceeds from the sale of the Preferred Securities, in a manner
consistent with Federal Reserve guidelines, and assuming that no proceeds
will be used to pay down outstanding debt.
(4) Federal Reserve guidelines for calculation of Tier 1 capital to
risk-weighted assets limit the amount of cumulative preferred stock and
securities similar to the Preferred Securities which can be included in Tier
1 capital to 25% of total Tier 1 capital.
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<PAGE> 30
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the Trust
Agreement. The Trust Agreement will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee, State Street Bank and Trust Company, will
act as indenture trustee for the Preferred Securities under the Trust Agreement
for purposes of complying with the provisions of the Trust Indenture Act. The
terms of the Preferred Securities will include those stated in the Trust
Agreement and those made part of the Trust Agreement by the Trust Indenture Act.
The following summary of the material terms and provisions of the Preferred
Securities and the Trust Agreement does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Trust
Agreement, Trust Act, and the Trust Indenture Act. Wherever particular defined
terms of the Trust Agreement are referred to, but not defined herein, such
defined terms are incorporated herein by reference. The form of the Trust
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
GENERAL
Pursuant to the terms of the Trust Agreement, the Trustees, on behalf of
the Trust, will issue the Trust Securities. All of the Common Securities will be
owned by the Company. The Preferred Securities will represent preferred
undivided beneficial interests in the assets of the Trust and the holders
thereof will be entitled to a preference over the Common Securities in certain
circumstances with respect to Distributions and amounts payable on redemption or
liquidation, as well as other benefits as described in the Trust Agreement. The
Trust Agreement does not permit the issuance by the Trust of any securities
other than the Trust Securities or the incurrence of any indebtedness by the
Trust.
The Preferred Securities will rank pari passu, and payments will be made
thereon pro rata with the Common Securities, except as described under
"-- Subordination of Common Securities." Legal title to the Junior Subordinated
Debentures will be held by the Property Trustee in trust for the benefit of the
holders of the Trust Securities. The Guarantee executed by the Company for the
benefit of the holders of the Preferred Securities will be a guarantee on a
subordinated basis with respect to the Preferred Securities, but will not
guarantee payment of Distributions or amounts payable on redemption or
liquidation of such Preferred Securities when the Trust does not have funds on
hand available to make such payments. State Street Bank and Trust Company, as
Guarantee Trustee, will hold the Guarantee for the benefit of the holders of the
Preferred Securities. See "Description of the Guarantee."
DISTRIBUTIONS
Payment of Distributions. Distributions on each Preferred Security will be
payable at the annual rate of % of the stated Liquidation Amount of
$ , payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year, to the holders of the Preferred Securities on the
relevant record dates (each date on which Distributions are payable in
accordance with the foregoing, a "Distribution Date"). The record date will be
the fifteenth day of the month in which the relevant Distribution Date occurs.
Distributions will accumulate from , 1998, the date of original
issuance. The first Distribution Date for the Preferred Securities will be
September 30, 1998. The amount of Distributions payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months. In the event
that any date on which Distributions are payable on the Preferred Securities is
not a Business Day, then payment of the Distributions payable on such date will
be made on the next succeeding day that is a Business Day (and without any
additional Distributions, interest or other payment in respect of any such
delay) with the same force and effect as if made on the date such payment was
originally due and payable. "Business Day" means any day other than a Saturday
or a Sunday, a day on which banking institutions in the City of Boston are
authorized or required by law or executive order to remain closed or a day on
which the corporate trust office of the Property Trustee or the Debenture
Trustee is closed for business.
Extension Period. The Company has the right under the Indenture, so long
as no Debenture Event of Default has occurred and is continuing, to defer the
payment of interest on the Junior Subordinated Debentures at any time, or from
time to time (each, an "Extension Period"), which, if exercised, would defer
29
<PAGE> 31
quarterly Distributions on the Preferred Securities during any such Extension
Period. Distributions to which holders of the Preferred Securities are entitled
will accumulate additional Distributions thereon at the rate per annum of %
thereof, compounded quarterly from the relevant Distribution Date.
"Distributions," as used herein, includes any such additional Distributions. The
right to defer the payment of interest on the Junior Subordinated Debentures is
limited, however, to a period, in each instance, not exceeding 20 consecutive
quarters and no Extension Period may extend beyond the Stated Maturity of the
Junior Subordinated Debentures. During any such Extension Period, the Company
may not (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of the
Company's capital stock, (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank pari passu with or junior in interest to the Junior
Subordinated Debentures or make any guarantee payments with respect to any
guarantee by the Company of the debt securities of any subsidiary of the Company
if such guarantee ranks pari passu with or junior in interest to the Junior
Subordinated Debentures (other than payments under the Guarantee), or (iii)
redeem, purchase or acquire less than all of the Junior Subordinated Debentures
or any of the Preferred Securities. Prior to the termination of any such
Extension Period, the Company may further defer the payment of interest;
provided, that such Extension Period may not exceed 20 consecutive quarters or
extend beyond the Stated Maturity of the Junior Subordinated Debentures. Upon
the termination of any such Extension Period and the payment of all amounts then
due, the Company may elect to begin a new Extension Period, subject to the above
requirements. Subject to the foregoing, there is no limitation on the number of
times that the Company may elect to begin an Extension Period.
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
Source of Distributions. The funds of the Trust available for distribution
to holders of its Preferred Securities will be limited to payments under the
Junior Subordinated Debentures in which the Trust will invest the proceeds from
the issuance and sale of its Trust Securities. See "Description of the Junior
Subordinated Debentures." Distributions will be paid through the Property
Trustee who will hold amounts received in respect of the Junior Subordinated
Debentures in the Property Account for the benefit of the holders of the Trust
Securities. If the Company does not make interest payments on the Junior
Subordinated Debentures, the Property Trustee will not have funds available to
pay Distributions on the Preferred Securities. The payment of Distributions (if
and to the extent the Trust has funds legally available for the payment of such
Distributions and cash sufficient to make such payments) is guaranteed by the
Company. See "Description of the Guarantee."
REDEMPTION OR EXCHANGE
General. The Junior Subordinated Debentures will mature on June 30, 2029.
The Company will have the right to redeem the Junior Subordinated Debentures (i)
on or after June 30, 2003, in whole at any time or in part from time to time, or
(ii) at any time, in whole (but not in part), within 180 days following the
occurrence of a Tax Event, a Capital Treatment Event or an Investment Company
Event, in each case subject to receipt of prior approval by the Federal Reserve
if then required under applicable capital guidelines or policies of the Federal
Reserve. The Company will not have the right to purchase the Junior Subordinated
Debentures, in whole or in part, from the Trust until after June 30, 2003. See
"Description of the Junior Subordinated Debentures -- General."
Mandatory Redemption. Upon the repayment or redemption, in whole or in
part, of any Junior Subordinated Debentures, whether at Stated Maturity or upon
earlier redemption as provided in the Indenture, the proceeds from such
repayment or redemption will be applied by the Property Trustee to redeem a Like
Amount (as defined herein) of the Trust Securities, upon not less than 30 nor
more than 60 days notice, at a redemption price (the "Redemption Price") equal
to the aggregate Liquidation Amount of such Trust Securities plus accumulated
but unpaid Distributions thereon to the date of redemption (the "Redemption
Date"). See "Description of the Junior Subordinated Debentures -- Redemption or
Exchange." If less than all of the Junior Subordinated Debentures are to be
repaid or redeemed on a Redemption
30
<PAGE> 32
Date, then the proceeds from such repayment or redemption will be allocated to
the redemption of the Trust Securities pro rata.
Distribution of Junior Subordinated Debentures. Subject to the Company
having received prior approval of the Federal Reserve if so required under
applicable capital guidelines or policies of the Federal Reserve, the Company
will have the right at any time to dissolve the Trust and, after satisfaction of
the liabilities of creditors of the Trust as provided by applicable law, cause
the Junior Subordinated Debentures to be distributed to the holders of Trust
Securities in liquidation of the Trust. See "-- Liquidation Distribution Upon
Dissolution."
Tax Event Redemption, Capital Treatment Event Redemption or Investment
Company Event Redemption. If a Tax Event, a Capital Treatment Event or an
Investment Company Event in respect of the Trust Securities occurs and is
continuing, the Company has the right to redeem the Junior Subordinated
Debentures in whole (but not in part) and thereby cause a mandatory redemption
of such Trust Securities in whole (but not in part) at the Redemption Price
within 180 days following the occurrence of such Tax Event, Capital Treatment
Event or Investment Company Event. In the event a Tax Event, a Capital Treatment
Event or an Investment Company Event has occurred with respect to the Trust
Securities and the Company does not elect to redeem the Junior Subordinated
Debentures and thereby cause a mandatory redemption of such Trust Securities or
to liquidate the Trust and cause the Junior Subordinated Debentures to be
distributed to holders of such Trust Securities in liquidation of the Trust as
described below under "-- Liquidation Distribution Upon Dissolution," such
Preferred Securities will remain outstanding and Additional Interest (as defined
herein) may be payable on the Junior Subordinated Debentures. "Additional
Interest" means the additional amounts as may be necessary in order that the
amount of Distributions then due and payable by the Trust on the outstanding
Trust Securities will not be reduced as a result of any additional taxes, duties
and other governmental charges to which the Trust has become subject as a result
of a Tax Event.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to that portion of the
principal amount of Junior Subordinated Debentures to be contemporaneously
redeemed in accordance with the Indenture, which will be used to pay the
Redemption Price of such Trust Securities, and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of Trust Securities in
connection with a dissolution or liquidation of the Trust, Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the holder to whom such Junior Subordinated Debentures are
distributed. Each Junior Subordinated Debenture distributed pursuant to clause
(ii) above will carry with it accumulated interest in an amount equal to the
accumulated and unpaid interest then due on such Junior Subordinated Debenture.
"Liquidation Amount" means the stated amount of $10 per Trust Security.
After the liquidation date fixed for any distribution of Junior
Subordinated Debentures for Preferred Securities (i) such Preferred Securities
will no longer be deemed to be outstanding, and (ii) any certificates
representing Preferred Securities will be deemed to represent the Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of such Preferred Securities, and bearing accrued and unpaid interest in
an amount equal to the accumulated and unpaid Distributions on the Preferred
Securities until such certificates are presented to the Administrative Trustees
or their agent for transfer or reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities if a dissolution and liquidation of the Trust
were to occur. The Preferred Securities that an investor may purchase, or the
Junior Subordinated Debentures that an investor may receive on dissolution and
liquidation of the Trust, may, therefore, trade at a discount to the price that
the investor paid to purchase the Preferred Securities offered hereby.
REDEMPTION PROCEDURES
Preferred Securities redeemed on each Redemption Date will be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Preferred
Securities will be made and the Redemption Price will be payable on each
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<PAGE> 33
Redemption Date only to the extent that the Trust has funds on hand available
for the payment of such Redemption Price. See "-- Subordination of the Common
Securities."
If the Trust gives a notice of redemption in respect of its Preferred
Securities, then, by 12:00 noon, New York time, on the Redemption Date, to the
extent funds are available, the Property Trustee will irrevocably deposit with
the paying agent for the Preferred Securities funds sufficient to pay the
aggregate Redemption Price and will give the paying agent for the Preferred
Securities irrevocable instructions and authority to pay the Redemption Price to
the holders thereof upon surrender of their certificates evidencing such
Preferred Securities. Notwithstanding the foregoing, Distributions payable on or
prior to the Redemption Date for any Preferred Securities called for redemption
will be payable to the holders of such Preferred Securities on the relevant
record dates for the related Distribution Dates. If notice of redemption will
have been given and funds deposited as required, then upon the date of such
deposit, all rights of the holders of such Preferred Securities so called for
redemption will cease, except the right of the holders of such Preferred
Securities to receive the Redemption Price and any Distribution payable on or
before the Redemption Date, but without interest on such Redemption Price or
Distribution, and such Preferred Securities will cease to be outstanding. In the
event that any date fixed for redemption of Preferred Securities is not a
Business Day, then payment of the Redemption Price payable on such date will be
made on the next succeeding day which is a Business Day (and without any
additional Distribution, interest or other payment in respect of any such delay)
with the same force and effect as if made on such date. In the event that
payment of the Redemption Price in respect of Preferred Securities called for
redemption is improperly withheld or refused and not paid either by the Trust,
or by the Company pursuant to the Guarantee, Distributions on such Preferred
Securities will continue to accumulate at the then applicable rate, from the
Redemption Date originally established by the Trust for such Preferred
Securities to the date such Redemption Price is actually paid, in which case the
actual payment date will be considered the date fixed for redemption for
purposes of calculating the Redemption Price. See "Description of the
Guarantee."
Subject to applicable law (including, without limitation, United States
federal securities law), and, further provided that the Company does not and is
not continuing to exercise its right to defer interest payments on the Junior
Subordinated Debentures, the Company or its subsidiaries may at any time and
from time to time purchase outstanding Preferred Securities by tender, in the
open market or by private agreement.
Payment of the Redemption Price on the Preferred Securities and any
distribution of Junior Subordinated Debentures to holders of Preferred
Securities will be made to the applicable record holders thereof as they appear
on the register for the Preferred Securities on the relevant record date, which
date will be the date 15 days prior to the Redemption Date or liquidation date,
as applicable.
If less than all of the Trust Securities are to be redeemed on a Redemption
Date, then the aggregate Liquidation Amount of such Trust Securities to be
redeemed will be allocated pro rata to the Trust Securities based upon the
relative Liquidation Amounts of such classes. The particular Preferred
Securities to be redeemed will be selected by the Property Trustee from the
outstanding Preferred Securities not previously called for redemption, by such
method as the Property Trustee deems fair and appropriate and which may provide
for the selection for redemption of portions (equal to $10 or an integral
multiple of $10 in excess thereof) of the Liquidation Amount of Preferred
Securities of a denomination larger than $10. The Property Trustee will promptly
notify the registrar for the Preferred Securities in writing of the Preferred
Securities selected for redemption and, in the case of any Preferred Securities
selected for partial redemption, the Liquidation Amount thereof to be redeemed.
For all purposes of the Trust Agreement, unless the context otherwise requires,
all provisions relating to the redemption of Preferred Securities will relate to
the portion of the aggregate Liquidation Amount of Preferred Securities which
has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Trust Securities to be
redeemed at its registered address. Unless the Company defaults in payment of
the redemption price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on such Junior Subordinated
Debentures or portions thereof (and Distributions will cease to accumulate on
the related Preferred Securities or portions thereof) called for redemption.
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<PAGE> 34
SUBORDINATION OF THE COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Preferred
Securities and Common Securities, as applicable, will be made pro rata based on
the Liquidation Amount of the Preferred Securities and Common Securities;
provided, however, that if on any Distribution Date or Redemption Date a
Debenture Event of Default has occurred and is continuing, no payment of any
Distribution on, or Redemption Price of, any of the Common Securities, and no
other payment on account of the redemption, liquidation or other acquisition of
such Common Securities, will be made unless payment in full in cash of all
accumulated and unpaid Distributions on all of the outstanding Preferred
Securities for all Distribution periods terminating on or prior thereto, or in
the case of payment of the Redemption Price the full amount of such Redemption
Price on all of the outstanding Preferred Securities then called for redemption,
will have been made or provided for, and all funds available to the Property
Trustee will first be applied to the payment in full in cash of all
Distributions on, or Redemption Price of, the Preferred Securities then due and
payable.
In the case of any Event of Default resulting from a Debenture Event of
Default, the Company as holder of the Common Securities will be deemed to have
waived any right to act with respect to any such Event of Default under the
Trust Agreement until the effect of such Events of Default with respect to the
Preferred Securities have been cured, waived or otherwise eliminated. Until any
such Event of Default under the Trust Agreement with respect to the Preferred
Securities has been so cured, waived or otherwise eliminated, the Property
Trustee will act solely on behalf of the holders of the Preferred Securities and
not on behalf of the Company, as holder of the Common Securities, and only the
holders of the Preferred Securities will have the right to direct the Property
Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The Company will have the right at any time to dissolve the Trust and cause
the Junior Subordinated Debentures, after satisfaction of liabilities to
creditors of the Trust, to be distributed to the holders of the Preferred
Securities. Such right is subject, however, to the Company having received prior
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve.
Pursuant to the Trust Agreement, the Trust will automatically dissolve upon
expiration of its term and will dissolve earlier on the first to occur of (i)
certain events of bankruptcy, dissolution or liquidation of the Company, (ii)
the Company, as depositor, giving written direction to the Property Trustee to
dissolve the Trust (which direction is optional and wholly within the discretion
of the Company, as depositor), (iii) redemption of all of the Preferred
Securities as described under "Redemption or Exchange -- Mandatory Redemption,"
or (iv) the entry of an order for the dissolution of the Trust by a court of
competent jurisdiction.
If an early dissolution occurs as described in clause (i), (ii) or (iv) of
the preceding paragraph, the Trust will be liquidated by the Trustees as
expeditiously as the Trustees determine to be possible by distributing, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, to the holders of such Trust Securities a Like Amount of the Junior
Subordinated Debentures, unless such distribution is determined by the Property
Trustee not to be practical, in which event such holders will be entitled to
receive out of the assets of the Trust available for distribution to holders,
after satisfaction of liabilities to creditors of the Trust as provided by
applicable law, an amount equal to, in the case of holders of Preferred
Securities, the aggregate of the Liquidation Amount plus accumulated but unpaid
Distributions thereon to the date of payment (such amount being the "Liquidation
Distribution"). If such Liquidation Distribution can be paid only in part
because the Trust has insufficient assets available to pay in full the aggregate
Liquidation Distribution, then the amounts payable directly by the Trust on the
Preferred Securities will be paid on a pro rata basis. The Company, as the
holder of the Common Securities, will be entitled to receive distributions upon
any such liquidation pro rata with the holders of the Preferred Securities,
except that, if a Debenture Event of Default has occurred and is continuing, the
Preferred Securities will have a priority over the Common Securities. See
"-- Subordination of Common Securities."
Under current United States federal income tax law and interpretations and
assuming, as expected, that the Trust is treated as a grantor trust, a
distribution of the Junior Subordinated Debentures should not be a taxable event
to holders of the Preferred Securities. Should there be a change in law, a
change in legal
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interpretation, a Tax Event or other circumstances, however, the distribution
could be a taxable event to holders of the Preferred Securities. See "Certain
Federal Income Tax Consequences -- Receipt of Junior Subordinated Debentures or
Cash Upon Liquidation of the Trust." If the Company elects neither to redeem the
Junior Subordinated Debentures prior to maturity nor to liquidate the Trust and
distribute the Junior Subordinated Debentures to holders of the Preferred
Securities, the Preferred Securities will remain outstanding until the repayment
of the Junior Subordinated Debentures.
If the Company elects to dissolve the Trust and thereby causes the Junior
Subordinated Debentures to be distributed to holders of the Preferred Securities
in liquidation of the Trust, the Company will continue to have the right to
shorten or extend the maturity of such Junior Subordinated Debentures, subject
to certain conditions. See "Description of the Junior Subordinated
Debentures -- General."
LIQUIDATION VALUE
The amount of the Liquidation Distribution payable on the Preferred
Securities in the event of any liquidation of the Trust is $10 per Preferred
Security plus accumulated but unpaid Distributions thereon to the date of
payment, which may be in the form of a distribution of such amount in Junior
Subordinated Debentures, subject to certain exceptions. See "-- Liquidation
Distribution Upon Dissolution."
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an event of default under the
Trust Agreement (an "Event of Default") with respect to the Preferred Securities
(whatever the reason for such Event of Default and whether voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court or any order, rule or regulation of any administrative or
governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description
of the Junior Subordinated Debentures -- Debenture Events of Default"); or
(ii) default by the Trust or the Property Trustee in the payment of
any Distribution when it becomes due and payable, and continuation of such
default for a period of 30 days; or
(iii) default by the Trust or the Property Trustee in the payment of
any Redemption Price of any Trust Security when it becomes due and payable;
or
(iv) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Trustees in the Trust Agreement (other
than a covenant or warranty a default in the performance of which or the
breach of which is dealt with in clauses (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Trustee(s) by the
holders of at least 25% in aggregate Liquidation Amount of the outstanding
Preferred Securities, a written notice specifying such default or breach
and requiring it to be remedied and stating that such notice is a "Notice
of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the Company to appoint a
successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of the Preferred Securities, the
Administrative Trustees and the Company, as depositor, unless such Event of
Default has been cured or waived. The Company, as depositor, and the
Administrative Trustees are required to file annually with the Property Trustee
a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the
Preferred Securities will have a preference over the Common Securities upon
dissolution of the Trust. See "-- Liquidation Distribution Upon Dissolution."
The existence of an Event of Default does not entitle the holders of Preferred
Securities to accelerate the maturity thereof.
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REMOVAL OF THE TRUST TRUSTEES
Unless a Debenture Event of Default has occurred and is continuing, any
Trustee may be removed at any time by the holder of the Common Securities. If a
Debenture Event of Default has occurred and is continuing, the Property Trustee
and the Delaware Trustee may be removed at such time by the holders of a
majority in Liquidation Amount of the outstanding Preferred Securities. In no
event, however, will the holders of the Preferred Securities have the right to
vote to appoint, remove or replace the Administrative Trustees, which voting
rights are vested exclusively in the Company as the holder of the Common
Securities. No resignation or removal of a Trustee and no appointment of a
successor trustee will be effective until the acceptance of appointment by the
successor trustee in accordance with the provisions of the Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default has occurred and is continuing, at any time or
times, for the purpose of meeting the legal requirements of the Trust Indenture
Act or of any jurisdiction in which any part of the Trust Property (as defined
in the Trust Agreement) may at the time be located, the Company, as the holder
of the Common Securities, will have power to appoint one or more Persons (as
defined in the Trust Agreement) either to act as a co-trustee, jointly with the
Property Trustee, of all or any part of such Trust Property, or to act as
separate trustee of any such Trust Property, in either case with such powers as
may be provided in the instrument of appointment, and to vest in such Person or
Persons in such capacity any property, title, right or power deemed necessary or
desirable, subject to the provisions of the Trust Agreement. In case a Debenture
Event of Default has occurred and is continuing, the Property Trustee alone will
have power to make such appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Any Person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which such Trustee is a party, or any Person
succeeding to all or substantially all the corporate trust business of such
Trustee, will be the successor of such Trustee under the Trust Agreement,
provided such Person is otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, except as described below. The Trust
may, at the request of the Company, with the consent of the Administrative
Trustees and without the consent of the holders of the Preferred Securities, the
Property Trustee or the Delaware Trustee, merge with or into, consolidate,
amalgamate, or be replaced by or convey, transfer or lease its properties and
assets substantially as an entirety to a trust organized as such under the laws
of any State; provided, that (i) such successor entity either (a) expressly
assumes all of the obligations of the Trust with respect to the Preferred
Securities, or (b) substitutes for the Preferred Securities other securities
having substantially the same terms as the Preferred Securities (the "Successor
Securities") so long as the Successor Securities rank the same as the Preferred
Securities rank in priority with respect to distributions and payments upon
liquidation, redemption and otherwise, (ii) the Company expressly appoints a
trustee of such successor entity possessing the same powers and duties as the
Property Trustee in its capacity as the holder of the Junior Subordinated
Debentures, (iii) the Successor Securities are listed, or any Successor
Securities will be listed upon notification of issuance, on any national
securities exchange or other organization on which the Preferred Securities are
then listed (including, if applicable, the Nasdaq National Market), if any, (iv)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Preferred Securities (including any Successor Securities) in any
material respect, (v) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Company has received an opinion
from independent counsel to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material
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respect, and (b) following such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither the Trust nor such successor
entity will be required to register as an "investment company" under the
Investment Company Act, and (vi) the Company owns all of the common securities
of such successor entity and guarantees the obligations of such successor entity
under the Successor Securities at least to the extent provided by the Guarantee,
the Indenture, the Junior Subordinated Debentures, the Trust Agreement and the
Expense Agreement. Notwithstanding the foregoing, the Trust will not, except
with the consent of holders of 100% in Liquidation Amount of the Preferred
Securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to any other Person or permit any other Person to consolidate, amalgamate, merge
with or into, or replace it if such consolidation, amalgamation, merger,
replacement, conveyance, transfer or lease would cause the Trust or the
successor entity to be classified as other than a grantor trust for United
States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "Description of the
Guarantee -- Amendments and Assignment" and as otherwise required by the Trust
Act and the Trust Agreement, the holders of the Preferred Securities will have
no voting rights.
The Trust Agreement may be amended from time to time by the Company, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Preferred Securities (i) with respect to acceptance of
appointment by a successor trustee, (ii) to cure any ambiguity, correct or
supplement any provisions in such Trust Agreement that may be inconsistent with
any other provision, or to make any other provisions with respect to matters or
questions arising under the Trust Agreement (provided such amendment is not
inconsistent with the other provisions of the Trust Agreement), or (iii) to
modify, eliminate or add to any provisions of the Trust Agreement to such extent
as is necessary to ensure that the Trust will be classified for United States
federal income tax purposes as a grantor trust at all times that any Trust
Securities are outstanding or to ensure that the Trust will not be required to
register as an "investment company" under the Investment Company Act; or (iv) to
reduce or increase the Liquidation Amount per Trust Security and simultaneously
to increase or reduce the number of Trust Securities issued and outstanding
solely for the purpose of maintaining the eligibility of the Preferred
Securities for listing or quotation on any national securities exchange or other
organization on which the Preferred Securities are then listed or quoted
(including, if applicable, the Nasdaq National Market); provided, however, that
in the case of clause (ii), such action may not adversely affect in any material
respect the interests of any holder of Trust Securities, and that, in the case
of clause (iv), the aggregate Liquidation Amount of the Trust Securities
outstanding upon completion of any such reduction or increase, must be the same
as the aggregate Liquidation Amount of the Trust Securities outstanding
immediately prior to any such reduction or increase, and any amendments of such
Trust Agreement will become effective when notice thereof is given to the
holders of Trust Securities (or, in the case of an amendment pursuant to clause
(iv), as of the date specified in the notice). The Trust Agreement may be
amended by the Trustees and the Company with (i) the consent of holders
representing not less than a majority in the aggregate Liquidation Amount of the
outstanding Trust Securities, and (ii) receipt by the Trustees of an opinion of
counsel to the effect that such amendment or the exercise of any power granted
to the Trustees in accordance with such amendment will not affect the Trust's
status as a grantor trust for United States federal income tax purposes or the
Trust's exemption from status as an "investment company" under the Investment
Company Act. Notwithstanding anything in this paragraph to the contrary, without
the consent of each holder of Trust Securities, the Trust Agreement may not be
amended to (a) change the amount or timing of any Distribution on the Trust
Securities or otherwise adversely affect the amount of any Distribution required
to be made in respect of the Trust Securities as of a specified date, or (b)
restrict the right of a holder of Trust Securities to institute suit for the
enforcement of any such payment on or after such date.
The Trustees will not, so long as any Junior Subordinated Debentures are
held by the Property Trustee, (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
executing any trust or power conferred on the Property Trustee with respect to
the Junior
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Subordinated Debentures, (ii) waive any past default that is waivable under the
Indenture, (iii) exercise any right to rescind or annul a declaration that the
principal of all the Junior Subordinated Debentures will be due and payable, or
(iv) consent to any amendment, modification or termination of the Indenture or
the Junior Subordinated Debentures, where such consent is required, without, in
each case, obtaining the prior approval of the holders of a majority in
aggregate Liquidation Amount of all outstanding Preferred Securities; provided,
however, that where a consent under the Indenture requires the consent of each
holder of Junior Subordinated Debentures affected thereby, no such consent will
be given by the Property Trustee without the prior consent of each holder of the
Preferred Securities. The Trustees may not revoke any action previously
authorized or approved by a vote of the holders of the Preferred Securities
except by subsequent vote of the holders of the Preferred Securities. The
Property Trustee will notify each holder of Preferred Securities of any notice
of default with respect to the Junior Subordinated Debentures. In addition to
obtaining the foregoing approvals of the holders of the Preferred Securities,
prior to taking any of the foregoing actions, the Trustees must obtain an
opinion of counsel experienced in such matters to the effect that the Trust will
not be classified as an association taxable as a corporation for United States
federal income tax purposes on account of such action.
Any required approval of holders of Preferred Securities may be given at a
meeting of holders of Preferred Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be given
to each holder of record of Preferred Securities in the manner set forth in the
Trust Agreement.
No vote or consent of the holders of Preferred Securities will be required
for the Trust to redeem and cancel its Preferred Securities in accordance with
the Trust Agreement.
Notwithstanding the fact that holders of Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Company, the Trustees or any
affiliate of the Company or any Trustee, will, for purposes of such vote or
consent, be treated as if they were not outstanding.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities will be made by check
mailed to the address of the holder entitled thereto as such address will appear
on the register of holders of the Preferred Securities. The paying agent for the
Preferred Securities will initially be the Property Trustee and any co-paying
agent chosen by the Property Trustee and acceptable to the Administrative
Trustees and the Company. The paying agent for the Preferred Securities may
resign as paying agent upon 30 days' written notice to the Property Trustee and
the Company. In the event that the Property Trustee no longer is the paying
agent for the Preferred Securities, the Administrative Trustees will appoint a
successor (which must be a bank or trust company acceptable to the
Administrative Trustees and the Company) to act as paying agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as the registrar and the transfer agent for
the Preferred Securities. Registration of transfers of Preferred Securities will
be effected without charge by or on behalf of the Trust, but upon payment of any
tax or other governmental charges that may be imposed in connection with any
transfer or exchange. The Trust will not be required to register or cause to be
registered the transfer of Preferred Securities after such Preferred Securities
have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than upon the occurrence and during the
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in the Trust Agreement and, upon the occurrence and
during the continuance of an Event of Default, must exercise the same degree of
care and skill as a prudent person would exercise or use in the conduct of his
or her own affairs. Subject to this provision, the Property Trustee is under no
obligation to exercise any of the powers vested in it by the Trust Agreement at
the request of any holder of Preferred Securities unless it is offered
reasonable indemnity against the costs,
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expenses and liabilities that might be incurred thereby. If no Event of Default
has occurred and is continuing and the Property Trustee is required to decide
between alternative causes of action, construe ambiguous provisions in the Trust
Agreement or is unsure of the application of any provision of the Trust
Agreement, and the matter is not one on which holders of Preferred Securities
are entitled under the Trust Agreement to vote, then the Property Trustee will
take such action as is directed by the Company and if not so directed, will take
such action as it deems advisable and in the best interests of the holders of
the Trust Securities and will have no liability except for its own bad faith,
negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that the Trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes and so that the Junior
Subordinated Debentures will be treated as indebtedness of the Company for
United States federal income tax purposes. The Company and the Administrative
Trustees are authorized, in this connection, to take any action, not
inconsistent with applicable law, the certificate of trust of the Trust or the
Trust Agreement, that the Company and the Administrative Trustees determine in
their discretion to be necessary or desirable for such purposes.
Holders of the Preferred Securities have no preemptive or similar rights.
The Trust Agreement and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
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DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
Concurrently with the issuance of the Preferred Securities, the Trust will
invest the proceeds thereof, together with the consideration paid by the Company
for the Common Securities, in the Junior Subordinated Debentures issued by the
Company. The Junior Subordinated Debentures will be issued as unsecured debt
under the Indenture, to be dated as of May , 1998 (the "Indenture"), between
the Company and State Street Bank and Trust Company, as trustee (the "Debenture
Trustee"). The Indenture will be qualified as an indenture under the Trust
Indenture Act. The following summary of the material terms and provisions of the
Junior Subordinated Debentures and the Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the
Indenture and to the Trust Indenture Act. Wherever particular defined terms of
the Indenture are referred to, but not defined herein, such defined terms are
incorporated herein by reference. The form of the Indenture has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
GENERAL
The Junior Subordinated Debentures will be limited in aggregate principal
amount to approximately $11,340,210 (or $13,041,250 if the Underwriters'
over-allotment option is exercised), the sum of the aggregate stated Liquidation
Amount of the Trust Securities. The Junior Subordinated Debentures will bear
interest at the annual rate of % of the principal amount thereof, payable
quarterly in arrears on March 31, June 30, September 30, and December 31 of each
year (each, an "Interest Payment Date") beginning September 30, 1998, to the
Person (as defined in the Indenture) in whose name each Subordinated Debenture
is registered, subject to certain exceptions, at the close of business on the
fifteenth day of the last month of the calendar quarter. It is anticipated that,
until the liquidation of the Trust, the Junior Subordinated Debentures will be
held in the name of the Property Trustee in trust for the benefit of the holders
of the Preferred Securities. The amount of interest payable for any period will
be computed on the basis of a 360-day year of twelve 30-day months. In the event
that any date on which interest is payable on the Junior Subordinated Debentures
is not a Business Day, then payment of the interest payable on such date will be
made on the next succeeding day that is a Business Day (and without any interest
or other payment in respect of any such delay), with the same force and effect
as if made on the date such payment was originally payable. Accrued interest
that is not paid on the applicable Interest Payment Date will bear additional
interest on the amount thereof (to the extent permitted by law) at the rate per
annum of % thereof, compounded quarterly. The term "interest," as used herein,
includes quarterly interest payments, interest on quarterly interest payments
not paid on the applicable Interest Payment Date and Additional Interest, as
applicable.
The Junior Subordinated Debentures will mature on June 30, 2029 (such date,
as it may be shortened or extended as hereinafter described, the "Stated
Maturity"). Such date may be shortened at any time by the Company to any date
not earlier than June 30, 2003, subject to the Company having received prior
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve. In the event that the Company
elects to shorten or extend the Stated Maturity of the Junior Subordinated
Debentures, it will give notice thereof to the Debenture Trustee, the Trust and
to the holders of the Junior Subordinated Debentures no more than 180 days and
no less than 90 days prior to the effectiveness thereof. The Company will not
have the right to purchase the Junior Subordinated Debentures, in whole or in
part, from the Trust until on or after June 30, 2003, except if a Tax Event, a
Capital Treatment Event or an Investment Company Event has occurred and is
continuing.
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Debt, Subordinated Debt and
Additional Senior Obligations of the Company. Because the Company is a holding
company, the right of the Company to participate in any distribution of assets
of the Bank, upon the Bank's liquidation or reorganization or otherwise (and
thus the ability of holders of the Junior Subordinated Debentures to benefit
indirectly from such distribution), is subject to the prior claim of creditors
of the Bank, except to the extent that the Company may itself be recognized as a
creditor of the Bank. The Junior Subordinated Debentures will, therefore, be
effectively subordinated to all existing and future liabilities of the Bank, and
holders of Junior Subordinated Debentures should look only to the assets of the
Company for payments on the Junior Subordinated Debentures. The Indenture does
not limit the incurrence or issuance of
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other secured or unsecured debt of the Company, including Senior Debt,
Subordinated Debt and Additional Senior Obligations, whether under the Indenture
or any existing indenture or other indenture that the Company may enter into in
the future or otherwise. See "-- Subordination."
The Indenture does not contain provisions that afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged
transaction or other similar transaction involving the Company that may
adversely affect such holders.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company has the right under the Indenture at any time during the term
of the Junior Subordinated Debentures, so long as no Debenture Event of Default
has occurred and is continuing, to defer the payment of interest at any time, or
from time to time (each, an "Extension Period"). The right to defer the payment
of interest on the Junior Subordinated Debentures is limited, however, to a
period, in each instance, not exceeding 20 consecutive quarters and no Extension
Period may extend beyond the Stated Maturity of the Junior Subordinated
Debentures. At the end of each Extension Period, the Company must pay all
interest then accrued and unpaid (together with interest thereon at the annual
rate of %, compounded quarterly, to the extent permitted by applicable law).
During an Extension Period, interest will continue to accrue and holders of
Junior Subordinated Debentures (or the holders of Preferred Securities if such
securities are then outstanding) will be required to accrue and recognize income
for United States federal income tax purposes. See "Certain Federal Income Tax
Consequences -- Potential Extension of Interest Payment Period and Original
Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock, (ii)
make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu
with or junior in interest to the Junior Subordinated Debentures or make any
guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks pari passu
or junior in interest to the Junior Subordinated Debentures (other than payments
under the Guarantee), or (iii) redeem, purchase or acquire less than all of the
Junior Subordinated Debentures or any of the Preferred Securities. Prior to the
termination of any such Extension Period, the Company may further defer the
payment of interest; provided, that no Extension Period may exceed 20
consecutive quarters or extend beyond the Stated Maturity of the Junior
Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all amounts then due on any Interest Payment Date, the Company
may elect to begin a new Extension Period subject to the above requirements. No
interest will be due and payable during an Extension Period, except at the end
thereof. The Company has no present intention of exercising its rights to defer
payments of interest on the Junior Subordinated Debentures. The Company must
give the Property Trustee, the Administrative Trustees and the Debenture Trustee
notice of its election of such Extension Period at least two Business Days prior
to the earlier of (i) the next succeeding date on which Distributions on the
Trust Securities would have been payable except for the election to begin such
Extension Period, or (ii) the date the Trust is required to give notice of the
record date, or the date such Distributions are payable, to the Nasdaq National
Market (or other applicable self-regulatory organization) or to holders of the
Preferred Securities, but in any event at least one Business Day before such
record date. Subject to the foregoing, there is no limitation on the number of
times that the Company may elect to begin an Extension Period.
ADDITIONAL SUMS
If the Trust or the Property Trustee is required to pay any additional
taxes, duties or other governmental charges as a result of the occurrence of a
Tax Event, the Company will pay to the holders of the Junior Subordinated
Debentures as additional amounts (referred to herein as "Additional Interest")
on the Junior Subordinated Debentures such additional amounts as may be required
so that the net amounts received and retained by the Trust after paying any such
additional taxes, duties or other governmental charges will not be
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less than the amounts the Trust would have received had such additional taxes,
duties or other governmental charges not been imposed.
REDEMPTION OR EXCHANGE
The Company will have the right to redeem the Junior Subordinated
Debentures prior to maturity (i) on or after June 30, 2003, in whole at any time
or in part from time to time, or (ii) at any time in whole (but not in part),
within 180 days following the occurrence of a Tax Event, a Capital Treatment
Event or an Investment Company Event, in each case at a redemption price equal
to the accrued and unpaid interest on the Junior Subordinated Debentures so
redeemed to the date fixed for redemption, plus 100% of the principal amount
thereof. Any such redemption prior to the Stated Maturity will be subject to
prior approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve.
"Tax Event" means the receipt by the Trust of an opinion of counsel
experienced in such matters to the effect that, as a result of any amendment to,
or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Trust is, or will be within 90 days after the
date of such opinion of counsel, subject to United States federal income tax
with respect to income received or accrued on the Junior Subordinated
Debentures, (ii) interest payable by the Company on the Junior Subordinated
Debentures is not, or within 90 days of the date of such opinion will not be,
deductible by the Company, in whole or in part, for United States federal income
tax purposes, or (iii) the Trust is, or will be within 90 days after the date of
such opinion of counsel, subject to more than a de minimis amount of other
taxes, duties, assessments or other governmental charges. The Company must
request and receive an opinion with regard to such matters within a reasonable
period of time after it becomes aware of the possible occurrence of any of the
events described in clauses (i) through (iii) above.
"Capital Treatment Event" means the receipt by the Trust of an opinion of
counsel experienced in such matters to the effect that, as a result of any
amendment to or any change (including any announced prospective change) in the
laws (or any regulations thereunder) of the United States or any political
subdivision thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or which proposed change,
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk of impairment of the Company's ability to treat the aggregate
Liquidation Amount of the Preferred Securities (or any substantial portion
thereof) as "Tier 1 Capital" (or the then equivalent thereof) for purposes of
the capital adequacy guidelines of the Federal Reserve, as then applicable to
the Company; provided, however, that the inability of the Company to treat all
or any portion of the Liquidation Amount of the Preferred Securities as Tier 1
Capital shall not constitute the basis for a Capital Treatment Event if such
inability results from the Company having cumulative preferred capital in excess
of the amount which may qualify for treatment as Tier 1 Capital under applicable
capital adequacy guidelines of the Federal Reserve.
"Investment Company Event" means the receipt by the Trust of an opinion of
counsel experienced in such matters to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, the Trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act, which change becomes effective on or after the date of original
issuance of the Preferred Securities.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Junior Subordinated
Debentures to be redeemed at its registered address. Unless the Company defaults
in payment of the redemption price for the Junior Subordinated Debentures, on
and after
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the redemption date interest ceases to accrue on such Junior Subordinated
Debentures or portions thereof called for redemption.
The Junior Subordinated Debentures will not be subject to any sinking fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Preferred Securities -- Liquidation
Distribution Upon Dissolution," under certain circumstances involving the
dissolution of the Trust, the Junior Subordinated Debentures may be distributed
to the holders of the Preferred Securities in liquidation of the Trust after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law. Any such distribution will be subject to receipt of prior approval by the
Federal Reserve if then required under applicable policies or guidelines of the
Federal Reserve. If the Junior Subordinated Debentures are distributed to the
holders of Preferred Securities upon the dissolution of the Trust, the Company
will use its best efforts to list the Junior Subordinated Debentures on the
Nasdaq National Market or such stock exchanges, if any, on which the Preferred
Securities are then listed. There can be no assurance as to the market price of
any Junior Subordinated Debentures that may be distributed to the holders of
Preferred Securities.
RESTRICTIONS ON CERTAIN PAYMENTS
If at any time (i) there has occurred a Debenture Event of Default, (ii)
the Company is in default with respect to its obligations under the Guarantee or
(iii) the Company has given notice of its election of an Extension Period as
provided in the Indenture with respect to the Junior Subordinated Debentures and
has not rescinded such notice, or such Extension Period, or any extension
thereof, is continuing, the Company will not (1) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock, (2) make any payment of
principal, interest or premium, if any, on or repay or repurchase or redeem any
debt securities of the Company that rank pari passu with or junior in interest
to the Junior Subordinated Debentures or make any guarantee payments with
respect to any guarantee by the Company of the debt securities of any subsidiary
of the Company if such guarantee ranks pari passu or junior in interest to the
Junior Subordinated Debentures (other than payments under the Guarantee), or (3)
redeem, purchase or acquire less than all of the Junior Subordinated Debentures
or any of the Preferred Securities.
SUBORDINATION
The Indenture provides that the Junior Subordinated Debentures are
subordinated and junior in right of payment to all Senior Debt, Subordinated
Debt and Additional Senior Obligations of the Company. Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution, winding
up, reorganization, assignment for the benefit of creditors, marshaling of
assets or any bankruptcy, insolvency, debt restructuring or similar proceedings
in connection with any insolvency or bankruptcy proceedings of the Company, the
holders of Senior Debt, Subordinated Debt and Additional Senior Obligations of
the Company will first be entitled to receive payment in full of principal of
(and premium on, if any) and interest on, if any, such Senior Debt, Subordinated
Debt and Additional Senior Obligations of the Company before the holders of
Junior Subordinated Debentures will be entitled to receive or retain any payment
in respect of the principal of or interest on the Junior Subordinated
Debentures.
In the event of the acceleration of the maturity of any Junior Subordinated
Debentures, the holders of all Senior Debt, Subordinated Debt and Additional
Senior Obligations of the Company outstanding at the time of such acceleration
will first be entitled to receive payment in full of all amounts due thereon
(including any amounts due upon acceleration) before the holders of the Junior
Subordinated Debentures will be entitled to receive or retain any payment in
respect of the principal of or interest on the Junior Subordinated Debentures.
No payments on account of principal or interest in respect of the Junior
Subordinated Debentures may be made if there has occurred and is continuing a
default in any payment with respect to Senior Debt, Subordinated Debt or
Additional Senior Obligations of the Company or an event of default with respect
to any
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Senior Debt, Subordinated Debt or Additional Senior Obligations of the Company
resulting in the acceleration of the maturity thereof, or if any judicial
proceeding is pending with respect to any such default.
"Debt" means, with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed, (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses, (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business), (v) every capital lease obligation of such Person, and (vi) every
obligation of the type referred to in clauses (i) through (v) of another Person
and all dividends of another Person the payment of which, in either case, such
Person has guaranteed or is responsible or liable, directly or indirectly, as
obligor or otherwise.
"Senior Debt" means, with respect to the Company, the principal of (and
premium, if any) and interest, if any (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to the
Company whether or not such claim for post-petition interest is allowed in such
proceeding), on Debt, whether incurred on or prior to the date of the Indenture
or thereafter incurred, unless, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Junior Subordinated
Debentures or to other Debt which is pari passu with, or subordinated to, the
Junior Subordinated Debentures; provided, however, that Senior Debt will not be
deemed to include (i) any Debt of the Company which when incurred and without
respect to any election under section 1111(b) of the United States Bankruptcy
Code of 1978, as amended, was without recourse to the Company, (ii) any Debt of
the Company to any of its subsidiaries, (iii) any Debt to any employee of the
Company, (iv) any Debt which by its terms is subordinated to trade accounts
payable or accrued liabilities arising in the ordinary course of business to the
extent that payments made to the holders of such Debt by the holders of the
Junior Subordinated Debentures as a result of the subordination provisions of
the Indenture would be greater than they otherwise would have been as a result
of any obligation of such holders to pay amounts over to the obligees on such
trade accounts payable or accrued liabilities arising in the ordinary course of
business as a result of subordination provisions to which such Debt is subject,
and (v) Debt which constitutes Subordinated Debt.
"Subordinated Debt" means, with respect to the Company, the principal of
(and premium, if any) and interest, if any (including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization relating to
the Company whether or not such claim for post-petition interest is allowed in
such proceeding), on Debt, whether incurred on or prior to the date of the
Indenture or thereafter incurred, which is by its terms expressly provided to be
junior and subordinate to other Debt of the Company (other than the Junior
Subordinated Debentures).
"Additional Senior Obligations" means, with respect to the Company, all
indebtedness, whether incurred on or prior to the date of the Indenture or
thereafter incurred, for claims in respect of derivative products such as
interest and foreign exchange rate contracts, commodity contracts and similar
arrangements; provided, however, that Additional Senior Obligations do not
include claims in respect of Senior Debt or Subordinated Debt or obligations
which, by their terms, are expressly stated to be not superior in right of
payment to the Junior Subordinated Debentures or to rank pari passu in right of
payment with the Junior Subordinated Debentures. "Claim," as used herein, has
the meaning assigned thereto in Section 101(4) of the United States Bankruptcy
Code of 1978, as amended.
The Indenture places no limitation on the amount of additional Senior Debt,
Subordinated Debt or Additional Senior Obligations that may be incurred by the
Company. The Company expects from time to time to incur additional indebtedness
constituting Senior Debt, Subordinated Debt and Additional Senior Obligations.
As of , 1998, the Company had no outstanding Senior Debt, Subordinated
Debt or Additional Senior Obligations. Because the Company is a holding company,
the Junior Subordinated
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Debentures are effectively subordinated to all existing and future liabilities
of the Company's subsidiaries, including obligations to depositors of the Bank.
PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on the Junior Subordinated
Debentures will be made at the office of the Debenture Trustee in Boston,
Massachusetts, except that, at the option of the Company, payment of any
interest may be made (i) by check mailed to the address of the Person entitled
thereto as such address appears in the register of holders of the Junior
Subordinated Debentures, or (ii) by transfer to an account maintained by the
Person entitled thereto as specified in the register of holders of the Junior
Subordinated Debentures, provided that proper transfer instructions have been
received by the regular record date. Payment of any interest on Junior
Subordinated Debentures will be made to the Person in whose name such
Subordinated Debenture is registered at the close of business on the regular
record date for such interest, except in the case of defaulted interest. The
Company may at any time designate additional paying agents for the Junior
Subordinated Debentures or rescind the designation of any paying agent for the
Junior Subordinated Debentures; however, the Company will at all times be
required to maintain a paying agent in Boston, Massachusetts and each place of
payment for the Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any paying agent for the
Junior Subordinated Debentures, or then held by the Company in trust, for the
payment of the principal of or interest on the Junior Subordinated Debentures
and remaining unclaimed for two years after such principal or interest has
become due and payable will be repaid to the Company on May 31 of each year or
(if then held in trust by the Company) will be discharged from such trust and
the holder of such Junior Subordinated Debenture will thereafter look, as a
general unsecured creditor, only to the Company for payment thereof.
REGISTRAR AND TRANSFER AGENT
The Debenture Trustee will act as the registrar and the transfer agent for
the Junior Subordinated Debentures. Junior Subordinated Debentures may be
presented for registration of transfer (with the form of transfer endorsed
thereon, or a satisfactory written instrument of transfer, duly executed), in
Boston, Massachusetts or at the office of the registrar in Boston,
Massachusetts. The Company may at any time rescind the designation of any such
transfer agent or approve a change in the location through which any such
transfer agent acts. The Company may at any time designate additional transfer
agents with respect to the Junior Subordinated Debentures. In the event of any
redemption, neither the Company nor the Debenture Trustee will be required to
(i) issue, register the transfer of or exchange Junior Subordinated Debentures
during a period beginning at the opening of business 15 days before the day of
selection for redemption of Junior Subordinated Debentures and ending at the
close of business on the day of mailing of the relevant notice of redemption, or
(ii) transfer or exchange any Junior Subordinated Debentures so selected for
redemption, except, in the case of any Junior Subordinated Debentures being
redeemed in part, any portion thereof not to be redeemed.
MODIFICATION OF INDENTURE
The Company and the Debenture Trustee may, from time to time without the
consent of the holders of the Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies and qualifying, or maintaining
the qualification of, the Indenture under the Trust Indenture Act. The Indenture
contains provisions permitting the Company and the Debenture Trustee, with the
consent of the holders of not less than a majority in principal amount of the
outstanding Junior Subordinated Debentures, to modify the Indenture; provided,
that no such modification may, without the consent of the holder of each
outstanding Subordinated Debenture affected by such proposed modification, (i)
extend the fixed maturity of the Junior Subordinated Debentures, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon, or (ii) reduce the percentage of principal amount of Junior
Subordinated Debentures, the holders of which are required to consent to any
such modification of the Indenture; provided that so long as any of the
Preferred Securities remain outstanding, no such modification may be made that
requires the consent of the holders of
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the Junior Subordinated Debentures, and no termination of the Indenture may
occur, and no waiver of any Debenture Event of Default may be effective, without
the prior consent of the holders of at least a majority of the aggregate
Liquidation Amount of the Preferred Securities and that if the consent of the
holder of each Subordinated Debenture is required, such modification will not be
effective until each holder of Trust Securities has consented thereto.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures that has occurred and
is continuing constitutes an event of default (each, a "Debenture Event of
Default") with respect to the Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures, when due (subject to the deferral of any due date in the case
of an Extension Period); or
(ii) failure to pay any principal on the Junior Subordinated
Debentures when due whether at maturity, upon redemption by declaration or
otherwise; or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Indenture for 90 days after written notice
to the Company from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of the Junior Subordinated
Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee. The Debenture Trustee, or the holders of not less than 25% in aggregate
outstanding principal amount of the Junior Subordinated Debentures, may declare
the principal due and payable immediately upon a Debenture Event of Default. The
holders of a majority in aggregate outstanding principal amount of the Junior
Subordinated Debentures may annul such declaration and waive the default if the
default (other than the non-payment of the principal of the Junior Subordinated
Debentures which has become due solely by such acceleration) has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee.
Should the holders of the Junior Subordinated Debentures fail to annul such
declaration and waive such default, the holders of a majority in aggregate
Liquidation Amount of the Preferred Securities will have such right.
The Company is required to file annually with the Debenture Trustee a
certificate as to whether or not the Company is in compliance with all the
conditions and covenants applicable to it under the Indenture.
If a Debenture Event of Default has occurred and is continuing, the
Property Trustee will have the right to declare the principal of and the
interest on such Junior Subordinated Debentures, and any other amounts payable
under the Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to such Junior Subordinated Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest on or
principal of the Junior Subordinated Debentures on the payment date on which
such payment is due and payable, then a holder of Preferred Securities may
institute a legal proceeding directly against the Company for enforcement of
payment to such holder of the principal of or interest on such Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities of such holder (a "Direct
Action"). In connection with such Direct Action, the Company will have a right
of set-off under the Indenture to the extent of any payment made by the Company
to such holder of Preferred Securities in the Direct Action. The Company may not
amend the Indenture to remove the foregoing right to bring a Direct Action
without the prior written consent of the holders of all of the Preferred
Securities. If the right to bring a Direct Action is removed, the Trust may
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become subject to the reporting obligations under the Exchange Act. The Company
has the right under the Indenture to set-off any payment made to such holder of
Preferred Securities by the Company in connection with a Direct Action.
The holders of the Preferred Securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the Junior Subordinated Debentures unless there has
been an Event of Default under the Trust Agreement. See "Description of the
Preferred Securities -- Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Company may not consolidate with or merge into any other Person or
convey or transfer its properties and assets substantially as an entirety to any
Person, and no Person may consolidate with or merge into the Company or sell,
convey, transfer or otherwise dispose of its properties and assets substantially
as an entirety to the Company, unless (i) in the event the Company consolidates
with or merges into another Person or conveys or transfers its properties and
assets substantially as an entirety to any Person, the successor Person is
organized under the laws of the United States or any State or the District of
Columbia, and such successor Person expressly assumes by supplemental indenture
the Company obligations on the Junior Subordinated Debentures, (ii) immediately
after giving effect thereto, no Debenture Event of Default, and no event which,
after notice or lapse of time or both, would become a Debenture Event of
Default, has occurred and is continuing, and (iii) certain other conditions
prescribed in the Indenture are met.
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to the
Company's obligations to pay certain sums due pursuant to the Indenture and to
provide certain officers' certificates and opinions of counsel described
therein) and the Company will be deemed to have satisfied and discharged the
Indenture when, among other things, all Junior Subordinated Debentures not
previously delivered to the Debenture Trustee for cancellation (i) have become
due and payable, or (ii) will become due and payable at their Stated Maturity
within one year or are to be called for redemption within one year, and the
Company deposits or causes to be deposited with the Debenture Trustee funds, in
trust, for the purpose and in an amount sufficient to pay and discharge the
entire indebtedness on the Junior Subordinated Debentures not previously
delivered to the Debenture Trustee for cancellation, for the principal and
interest to the date of the deposit or to the Stated Maturity or redemption
date, as the case may be.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by
and construed in accordance with the laws of The Commonwealth of Massachusetts.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee has and is subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Debenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Junior Subordinated Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Debenture Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Debenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
MISCELLANEOUS
The Company has agreed, pursuant to the Indenture, for so long as Trust
Securities remain outstanding, (i) to maintain directly or indirectly 100%
ownership of the Common Securities of the Trust (provided that certain
successors which are permitted pursuant to the Indenture may succeed to the
Company's ownership of the Common Securities), (ii) not to voluntarily dissolve
the Trust, except upon prior approval of the Federal
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Reserve if then so required under applicable capital guidelines or policies of
the Federal Reserve, and (a) in connection with a distribution of Junior
Subordinated Debentures to the holders of the Preferred Securities in
liquidation of the Trust, or (b) in connection with certain mergers,
consolidations or amalgamations permitted by the Trust Agreement, and (iii) to
use its reasonable efforts, consistent with the terms and provisions of the
Trust Agreement, to cause the Trust to remain classified as a grantor trust and
not as an association taxable as a corporation for United States federal income
tax purposes.
DESCRIPTION OF THE GUARANTEE
The Preferred Securities Guarantee Agreement (the "Guarantee") will be
executed and delivered by the Company concurrently with the issuance of the
Preferred Securities for the benefit of the holders of the Preferred Securities.
The Guarantee will be qualified as an indenture under the Trust Indenture Act.
The Guarantee Trustee will act as indenture trustee under the Guarantee for
purposes of complying with the provisions of the Trust Indenture Act. The
Guarantee Trustee, State Street Bank and Trust Company, will hold the Guarantee
for the benefit of the holders of the Preferred Securities. The following
summary of the material terms and provisions of the Guarantee does not purport
to be complete and is subject to, and qualified in its entirety by reference to,
all of the provisions of the Guarantee and the Trust Indenture Act. Wherever
particular defined terms of the Guarantee are referred to, but not defined
herein, such defined terms are incorporated herein by reference. The form of the
Guarantee has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
GENERAL
The Company will, pursuant to the Guarantee, irrevocably agree to pay in
full on a subordinated basis, to the extent set forth therein, the Guarantee
Payments (as defined below) to the holders of the Preferred Securities, as and
when due, regardless of any defense, right of set-off or counterclaim that the
Trust may have or assert other than the defense of payment. The following
payments with respect to the Preferred Securities, to the extent not paid by or
on behalf of the Trust (the "Guarantee Payments"), will be subject to the
Guarantee: (i) any accumulated and unpaid Distributions required to be paid on
the Preferred Securities, to the extent that the Trust has funds available
therefor at such time, (ii) the Redemption Price with respect to any Preferred
Securities called for redemption to the extent that the Trust has funds
available therefor at such time, and (iii) upon a voluntary or involuntary
dissolution, winding up or liquidation of the Trust (other than in connection
with the distribution of Junior Subordinated Debentures to the holders of
Preferred Securities or a redemption of all of the Preferred Securities), the
lesser of (a) the amount of the Liquidation Distribution, to the extent the
Trust has funds available therefor at such time, and (b) the amount of assets of
the Trust remaining available for distribution to holders of Preferred
Securities in liquidation of the Trust. The obligation of the Company to make a
Guarantee Payment may be satisfied by direct payment of the required amounts by
the Company to the holders of the Preferred Securities or by causing the Trust
to pay such amounts to such holders.
The Guarantee will not apply to any payment of Distributions except to the
extent the Trust has funds available therefor. If the Company does not make
interest payments on the Junior Subordinated Debentures held by the Trust, the
Trust will not pay Distributions on the Preferred Securities and will not have
funds legally available therefor.
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Debt,
Subordinated Debt and Additional Senior Obligations of the Company in the same
manner as the Junior Subordinated Debentures. The Guarantee does not place a
limitation on the amount of additional Senior Debt, Subordinated Debt or
Additional Senior Obligations that may be incurred by the Company. The Company
expects from time to time to incur additional indebtedness constituting Senior
Debt, Subordinated Debt and Additional Senior Obligations.
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The Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly against
the Company to enforce its rights under the Guarantee without first instituting
a legal proceeding against any other Person). The Guarantee will not be
discharged except by payment of the Guarantee Payments in full to the extent not
paid by the Trust or upon distribution of the Junior Subordinated Debentures to
the holders of the Preferred Securities. Because the Company is a holding
company, the right of the Company to participate in any distribution of assets
of the Bank upon the Bank's liquidation or reorganization or otherwise is
subject to the prior claims of creditors of the Bank, except to the extent the
Company may itself be recognized as a creditor of the Bank. The Company's
obligations under the Guarantee, therefore, will be effectively subordinated to
all existing and future liabilities of the Company's subsidiaries, and claimants
should look only to the assets of the Company for payments thereunder.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Preferred Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of the
outstanding Preferred Securities. See "Description of the Preferred
Securities -- Voting Rights; Amendment of Trust Agreement." All guarantees and
agreements contained in the Guarantee will bind the successors, assigns,
receivers, trustees and representatives of the Company and will inure to the
benefit of the holders of the Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
Any holder of Preferred Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee or
any other Person.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after
default with respect to the Guarantee, must exercise the same degree of care and
skill as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to such provisions, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of any Preferred Securities, unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon (a)
full payment of the Redemption Price of the Preferred Securities, (b) full
payment of the amounts payable upon liquidation of the Trust, or (c)
distribution of the Junior Subordinated Debentures to the holders of the
Preferred Securities. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of the Preferred
Securities must restore payment of any sums paid under such Preferred Securities
or the Guarantee.
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<PAGE> 50
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of The Commonwealth of Massachusetts.
EXPENSE AGREEMENT
The Company will, pursuant to the Agreement as to Expenses and Liabilities
entered into by it under the Trust Agreement (the "Expense Agreement"),
irrevocably and unconditionally guarantee to each person or entity to whom the
Trust becomes indebted or liable, the full payment of any costs, expenses or
liabilities of the Trust, other than obligations of the Trust to pay to the
holders of the Preferred Securities or other similar interests in the Trust of
the amounts due such holders pursuant to the terms of the Preferred Securities
or such other similar interests, as the case may be. Third party creditors of
the Trust may proceed directly against the Company under the Expense Agreement,
regardless of whether such creditors had notice of the Expense Agreement.
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent the Trust has funds available for the payment of such
Distributions) are irrevocably guaranteed by the Company as and to the extent
set forth under "Description of the Guarantee." The Company and the Trust
believe that, taken together, the obligations of the Company under the Junior
Subordinated Debentures, the Indenture, the Trust Agreement, the Expense
Agreement, and the Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee, on a subordinated basis, of payment of Distributions
and other amounts due on the Preferred Securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of the obligations of the Trust under the Preferred Securities. If and to the
extent that the Company does not make payments on the Junior Subordinated
Debentures, the Trust will not pay Distributions or other amounts due on the
Preferred Securities. The Guarantee does not cover payment of Distributions when
the Trust does not have sufficient funds to pay such Distributions. In such
event, the remedy of a holder of Preferred Securities is to institute a legal
proceeding directly against the Company for enforcement of payment of such
Distributions to such holder. The obligations of the Company under the Guarantee
are subordinate and junior in right of payment to all Senior Debt, Subordinated
Debt and Additional Senior Obligations of the Company.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Preferred Securities, primarily
because (i) the aggregate principal amount of the Junior Subordinated Debentures
will be equal to the sum of the aggregate stated Liquidation Amount of the Trust
Securities, (ii) the interest rate and interest and other payment dates on the
Junior Subordinated Debentures will match the Distribution rate and Distribution
and other payment dates for the Preferred Securities, (iii) the Company will pay
for all and any costs, expenses and liabilities of the Trust (except the
obligations of the Trust to holders of the Preferred Securities), and (iv) the
Trust Agreement further provides that the Trust will not engage in any activity
that is not consistent with the limited purposes of the Trust.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any Preferred Security may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee
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<PAGE> 51
Trustee, the Trust or any other Person. A default or event of default under any
Senior Debt, Subordinated Debt or Additional Senior Obligations of the Company
would not constitute a default or Event of Default. In the event, however, of
payment defaults under, or acceleration of, Senior Debt, Subordinated Debt or
Additional Senior Obligations of the Company, the subordination provisions of
the Indenture provide that no payments may be made in respect of the Junior
Subordinated Debentures until such Senior Debt, Subordinated Debt or Additional
Senior Obligations has been paid in full or any payment default thereunder has
been cured or waived. Failure to make required payments on the Junior
Subordinated Debentures would constitute an Event of Default.
LIMITED PURPOSE OF THE TRUST
The Preferred Securities evidence a preferred undivided beneficial interest
in the assets of the Trust. The Trust exists for the exclusive purposes of (i)
issuing the Trust Securities representing undivided beneficial interests in the
assets of the Trust, (ii) investing the gross proceeds of the Trust Securities
in the Junior Subordinated Debentures issued by the Company, and (iii) engaging
in only those other activities necessary, advisable, or incidental thereto. A
principal difference between the rights of a holder of a Preferred Security and
the rights of a holder of a Subordinated Debenture is that a holder of a
Subordinated Debenture is entitled to receive from the Company the principal
amount of and interest accrued on Junior Subordinated Debentures held, while a
holder of Preferred Securities is entitled to receive Distributions from the
Trust (or from the Company under the Guarantee) if and to the extent the Trust
has funds available for the payment of such Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution of the Trust involving the
liquidation of the Junior Subordinated Debentures, the holders of the Preferred
Securities will be entitled to receive, out of assets held by the Trust, the
Liquidation Distribution in cash. See "Description of the Preferred
Securities -- Liquidation Distribution Upon Dissolution." Upon any voluntary or
involuntary liquidation or bankruptcy of the Company, the Property Trustee, as
holder of the Junior Subordinated Debentures, would be a subordinated creditor
of the Company, subordinated in right of payment to all Senior Debt,
Subordinated Debt and Additional Senior Obligations of the Company (as set forth
in the Indenture), but entitled to receive payment in full of principal and
interest before any shareholders of the Company receive payments or
distributions. Since the Company is the guarantor under the Guarantee and has
agreed to pay for all costs, expenses and liabilities of the Trust (other than
the obligations of the Trust to the holders of its Preferred Securities), the
positions of a holder of the Preferred Securities and a holder of the Junior
Subordinated Debentures relative to other creditors and to shareholders of the
Company in the event of liquidation or bankruptcy of the Company are expected to
be substantially the same.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the principal United States federal income
tax consequences of the purchase, ownership and disposition of Preferred
Securities which has been passed upon by Foley, Hoag & Eliot LLP, counsel to the
Company and the Trust insofar as it relates to matters of law and legal
conclusions. The discussion only addresses the tax consequences to a person that
acquires Preferred Securities on their original issue at their original offering
price and that is (i) an individual citizen or resident of the United States,
(ii) a corporation or partnership organized in or under the laws of the United
States or any state thereof or the District of Columbia or (iii) an estate or
trust the income of which is subject to United States federal income tax
regardless of source. This discussion does not attempt to discuss all tax
consequences that may be applicable to a holder of Preferred Securities, nor
does it address the tax consequences to (i) persons who are not United States
Persons, (ii) persons that may be subject to special tax treatment under United
States federal income tax law, such as banks, insurance companies, thrift
institutions, real estate investment trusts, regulated investment companies,
tax-exempt organizations, and dealers in securities or currencies, (iii) persons
that will hold the Preferred Securities as part of a position in a "straddle,"
as part of a "hedge or "synthetic security," as part of a "conversion
transaction" or other integrated investment transaction for federal income tax
purposes, or as other than a capital asset, or (iv) persons whose functional
currency is not the United States dollar. Further, it does not include any
description of any alternative minimum tax consequences or the tax laws of any
state or local government or of any foreign government that may be applicable to
the Preferred Securities.
The summary is based on current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), Treasury regulations thereunder and
administrative and judicial interpretations thereof, all of which are subject to
change, with possible retroactive effect. Subsequent changes may cause tax
consequences to vary substantially from the consequences described below.
Furthermore, the authorities on which this summary is based are subject to
various interpretations, and it is therefore possible that the federal income
tax treatment of the purchase, ownership and disposition of Preferred Securities
may differ from the treatment described below.
CLASSIFICATION OF THE TRUST
Under current law and assuming full compliance with the terms of the Trust
Agreement and Indenture (and certain other documents described herein), the
Trust will be classified for United States federal income tax purposes as a
grantor trust and not as an association taxable as a corporation. As a result,
each holder of Preferred Securities generally will be considered the owner of an
undivided beneficial interest in the Junior Subordinated Debentures.
Accordingly, for United States federal income tax purposes, each holder of
Preferred Securities will be required to include in its gross income any
interest, including original issue discount, paid or accrued with respect to its
allocable share of the Junior Subordinated Debentures whether or not cash is
actually distributed to such holder.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
The Company intends to take the position that the Junior Subordinated
Debentures will be classified for United States federal income tax purposes as
indebtedness of the Company under current law and each holder of Preferred
Securities will be treated as owning an indirect beneficial interest in the
Junior Subordinated Debentures. No ruling is being requested from the Internal
Revenue Service and there is no direct authority addressing the characterization
of the Junior Subordinated Debentures. No assurance can be given that such
position of the Company will not be challenged by the Internal Revenue Service
or, if challenged that such a challenge will not be successful. The remainder of
this discussion assumes that the Junior Subordinated Debentures will be
classified for United States federal income tax purposes as indebtedness of the
Company.
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POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
Under recently issued Treasury regulations (the "Regulations"), a debt
instrument will be deemed to be issued with original issue discount ("OID") if
there is more than a "remote" contingency that periodic stated interest payments
due on the instrument will not be timely paid. Because the exercise by the
Company of its option to defer the payment of stated interest on the Junior
Subordinated Debentures would prevent the Company from declaring dividends on
any class of equity, the Company believes that the likelihood of its exercising
the option is "remote" within the meaning of the Regulations. As a result, the
Company intends to take the position that the Junior Subordinated Debentures
will not be considered to be issued with OID. Accordingly, based on this
position, stated interest on the Junior Subordinated Debentures will be
includible in the ordinary income of a holder at the time that such payments are
paid or accrued in accordance with such holder's regular method of tax
accounting. Because the Regulations have not yet been addressed in any published
rulings or other published interpretations issued by the Internal Revenue
Service, it is possible that the Internal Revenue Service could take a position
contrary to the position taken by the Company.
Under the Regulations, if the Company were to exercise its option to defer
the payment of stated interest on the Junior Subordinated Debentures, the Junior
Subordinated Debentures would at that time be treated as issued with OID and all
stated interest on the Junior Subordinated Debentures would thereafter be
treated as OID as long as the Junior Subordinated Debentures remain outstanding.
In such event, a holder of the Junior Subordinated Debentures would be required
to include OID in ordinary income, on a current basis, over the period that the
instrument is held even though the Company would not be making any actual cash
payments during the extended interest payment period. The amount of interest
income includible in the taxable income of a holder of the Junior Subordinated
Debentures would be determined on the basis of a constant yield method over the
remaining term of the instrument and the actual receipt of future payments of
stated interest on the Junior Subordinated Debentures would no longer be
separately reported as taxable income. The amount of OID that would accrue, in
the aggregate, during the extended interest payment period would be
approximately equal to the amount of the cash payment due at the end of such
period. Any OID included in income would increase the holder's adjusted tax
basis in the Junior Subordinated Debentures and the holder's actual receipt of
interest payments would reduce such basis.
Because income on the Preferred Securities will constitute interest or OID,
corporate holders of Preferred Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the Preferred Securities.
MARKET DISCOUNT AND ACQUISITION PREMIUM
Holders of Preferred Securities other than a holder who purchased the
Preferred Securities upon original issuance may be considered to have acquired
their undivided interest in the Junior Subordinated Debentures with "market
discount' or acquisition premium" as such phrases are defined for United States
federal income tax purposes. Such holders are advised to consult their tax
advisors as to the income tax consequences of the acquisition, ownership and
disposition of the Preferred Securities.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described herein (see "Description of the
Preferred Securities -- Redemption or Exchange" and "Description of the
Preferred Securities -- Liquidation Distribution Upon Dissolution"), the Junior
Subordinated Debentures may be distributed to holders of Preferred Securities
upon a liquidation of the Trust. Under current United States federal income tax
law, such a distribution would be treated as a nontaxable event to each such
holder and would result in such holder having an adjusted tax basis in the
Junior Subordinated Debentures received in the liquidation equal to such
holder's adjusted tax basis in the Preferred Securities immediately before the
distribution. A holder's holding period in the Junior Subordinated Debentures so
received in liquidation of the Trust would include the period for which such
holder held the Preferred Securities. If, however, the Trust is characterized
for United States federal income tax purposes as an association taxable as a
corporation at the time of its dissolution, the distribution of the Junior
Subordinated Debentures may constitute a taxable event to holders of Preferred
Securities.
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Under certain circumstances described herein, the Junior Subordinated
Debentures may be redeemed for cash and the proceeds of such redemption
distributed to holders in redemption of their Preferred Securities. Under
current law, such a redemption would, for United States federal income tax
purposes, constitute a taxable disposition of the redeemed Preferred Securities,
and a holder would recognize gain or loss as if the holder sold such Preferred
Securities for cash. See "Description of the Preferred Securities -- Redemption
or Exchange" and "Description of the Preferred Securities -- Liquidation
Distribution Upon Dissolution."
DISPOSITION OF PREFERRED SECURITIES
Upon the sale of the Preferred Securities, a holder will recognize gain or
loss in an amount equal to the difference between its adjusted tax basis in the
Preferred Securities and the amount realized in the sale (except to the extent
of any amount received in respect of accrued but unpaid interest not previously
included in income). A holder's adjusted tax basis in the Preferred Securities
generally will be its initial purchase price increased by the amount of OID
accrued and decreased by payments (if any) received on the Preferred Securities
in respect of OID (if any) to the date of disposition. Such gain or loss
generally will be a capital gain or loss and generally will be long-term capital
gain or loss if the Preferred Securities have been held for more than one year
at the time of sale. Amounts attributable to accrued interest with respect to a
holder's share of the Junior Subordinated Debentures not previously included in
income will be taxable as ordinary income.
Should the Corporation exercise its option to defer any payment of interest
on the Junior Subordinated Debentures, the Preferred Securities may trade at a
price that does not accurately reflect the value of accrued but unpaid interest
with respect to the underlying Junior Subordinated Debentures (or OID if the
Junior Subordinated Debentures are treated as having been issued with OID). In
the event of such a deferral, a holder who disposes of its Preferred Securities
will be required to include in ordinary income (i) any portion of the amount
realized that is attributable to such accrued but unpaid interest to the extent
not previously included in income, or (ii) any amount of OID, in either case,
that has accrued on its pro rata share of the underlying Junior Subordinated
Debentures during the taxable year of sale through the date of disposition. Any
such income inclusion will increase the holder's adjusted tax basis in the
Preferred Securities disposed of. To the extent that the amount realized in the
sale is less than the holder's adjusted tax basis, a holder will recognize a
capital loss. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The amount of interest paid and any OID accrued on the Preferred Securities
held of record by individual citizens or residents of the United States, or
certain trusts, estates, and partnerships, will be reported to the Internal
Revenue Service on Forms 1099, which forms should be mailed to such holders of
Preferred Securities by January 31 following each calendar year. Payments of
interest may be subject to a "backup" withholding tax at a rate of 31% unless
the holder complies with certain identification and other requirements. Payment
of the proceeds from the sale of Preferred Securities may also be subject to
information reporting and backup withholding. Any amounts withheld under the
backup withholding rules will be allowed as a credit against the holder's United
States federal income tax liability, provided the required information is
furnished to the Internal Revenue Service.
EFFECT OF PROPOSED CHANGES IN TAX LAWS
In both 1996 and 1997 legislation was proposed that would, if enacted, have
adversely affected the tax treatment of the Preferred Securities. On March 19,
1996, President Clinton proposed certain tax law changes (the "1996 Proposed
Legislation") that would, among other things, generally deny corporate issuers a
deduction for interest in respect of certain debt obligations having a maximum
term in excess of 20 years and not shown as indebtedness on the issuer's
applicable consolidated balance sheet. Neither the 1996 Proposed Legislation or
similar legislation was enacted during the 104th Congress. On February 6, 1997,
President Clinton proposed in the administration's fiscal year 1998 budget
certain tax law changes (the "Administration's 1997 Tax Proposals") that would,
among other things, generally deny corporate issuers a deduction for
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interest or OID in respect of certain debt obligations having a maximum term in
excess of 15 years and not shown as indebtedness on the issuer's applicable
consolidated balance sheet. Neither the Administration's 1997 Tax Proposals nor
similar legislation was enacted by the 105th Congress. There can be no
assurance, however, that legislation enacted after the date hereof will not
adversely affect the ability of the Company to deduct the interest payable on
the Junior Subordinated Debentures or otherwise give rise to a Tax Event.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE MAY NOT BE
APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD
CONSULT THEIR TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED SECURITIES, INCLUDING THE
TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN THE UNITED STATES FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Employee benefit plans that are subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code
("Plans"), generally may purchase Preferred Securities, subject to the investing
fiduciary's determination that the investment in Preferred Securities satisfies
ERISA's fiduciary standards and other requirements applicable to investments by
the Plan.
In any case, the Company and/or any of its affiliates may be considered a
"party in interest" (within the meaning of ERISA) or a "disqualified person"
(within the meaning of Section 4975 of the Code) with respect to certain plans
(generally, Plans maintained or sponsored by, or contributed to by, any such
persons with respect to which the Company or an affiliate is a fiduciary or
Plans for which the Company or an affiliate provides services). The acquisition
and ownership of Preferred Securities by a Plan (or by an individual retirement
arrangement or other Plans described in Section 4975(e)(1) of the Code) with
respect to which the Company or any of its affiliates is considered a party in
interest or a disqualified person may constitute or result in a prohibited
transaction under ERISA or Section 4975 of the Code, unless such Preferred
Securities are acquired pursuant to and in accordance with an applicable
exemption.
As a result, Plans with respect to which the Company or any of its
affiliates is a party in interest or a disqualified person should not acquire
Preferred Securities unless such Preferred Securities are acquired pursuant to
and in accordance with an applicable exemption. Any other Plans or other
entities whose assets include Plan assets subject to ERISA or Section 4975 of
the code proposing to acquire Preferred Securities should consult with their own
counsel.
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UNDERWRITING
The Underwriters named below, represented by Tucker Anthony Incorporated
(the "Representative"), have severally agreed, subject to the terms and
conditions set forth in the Underwriting Agreement, the form of which is filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part, to purchase from the Trust the number of Preferred Securities set forth
opposite their respective names below. The several Underwriters have agreed in
the Underwriting Agreement, subject to the terms and conditions set forth
therein, to purchase all the Preferred Securities offered hereby if any of the
Preferred Securities are purchased. In the event of default by an Underwriter,
the Underwriting Agreement provides that, in certain circumstances, purchase
commitments of the nondefaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER PREFERRED SECURITIES
----------- --------------------
<S> <C>
Tucker Anthony Incorporated.................................
McConnell, Budd & Downes, Inc. .............................
---------
Total............................................. 1,100,000
=========
</TABLE>
The Representative has advised the Trust that it proposes initially to
offer the Preferred Securities to the public at the public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such price
less a concession not in excess of $ per Preferred Security. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per Preferred Security to certain other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures of the
Company, the Underwriting Agreement provides that the Company will pay as
compensation to the Underwriters arranging the investment therein of such
proceeds, an amount in immediately available funds of $ per Preferred
Security (or $ in the aggregate) for the accounts of the several
Underwriters.
The Trust has granted the Underwriters an option to purchase up to an
additional 165,000 Preferred Securities at the public offering price. Such
option, which expires 30 days from the date of this Prospectus, may be exercised
solely to cover over-allotments. To the extent that the Underwriters exercise
such option, each of the Underwriters will have a firm commitment, subject to
certain conditions, to purchase approximately the same percentage of the
additional Preferred Securities that the number of Preferred Securities to be
purchased initially by the Underwriter is of the 1,100,000 Preferred Securities
initially purchased by the Underwriters.
To the extent that the Underwriters exercise their option to purchase
additional Preferred Securities, the Trust will issue and sell to the Company
additional Common Securities in such aggregate Liquidation Amount as is required
for the Company to continue to hold Common Securities in an aggregate
Liquidation Amount equal to at least 3% of the total capital of the Trust and
the Company will issue and sell to the Trust Junior Subordinated Debentures in
an aggregate principal amount equal to the total aggregate Liquidation Amount of
the additional Preferred Securities being purchased pursuant to the option and
the additional Common Securities.
In connection with the offering of the Preferred Securities, the
Underwriters and any selling group members and their respective affiliates may
engage in transactions effected in accordance with Rule 104 of the Securities
and Exchange Commission's Regulation M that are intended to stabilize, maintain
or otherwise affect the market price of the Preferred Securities. Such
transactions may include over-allotment transactions in which the Underwriters
create a short position for their own account by selling more Preferred
Securities than they are committed to purchase from the Trust. In such case, to
cover all or part of the short position, the Underwriters may exercise the
over-allotment option described above or may purchase Preferred Securities in
the open market following completion of the initial offering of the Preferred
Securities. The Underwriters also may engage in stabilizing transactions in
which they bid for and purchase Preferred Securities at a level above that which
might otherwise prevail in the open market for the purpose of preventing or
retarding a decline in the market price of the Preferred Securities. The
Underwriters also may reclaim any selling concessions
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<PAGE> 57
allowed to an Underwriter or dealer if the Underwriters repurchase shares
distributed by that Underwriter or dealer. Any of the foregoing transactions may
result in the maintenance of a price for the Preferred Securities at a level
above that which might otherwise prevail in the open market. Neither the Company
nor any of the Underwriters makes any representation or prediction as to the
direction or magnitude of any effect that the transactions described above may
have on the price of the Preferred Securities. The Underwriters are not required
to engage in any of the foregoing transactions and, if commenced, such
transactions may be discontinued at any time without notice.
During a period of 180 days from the date of this Prospectus, neither the
Trust nor the Company will, subject to certain exceptions, without the prior
written consent of the Representative, directly or indirectly, sell, offer to
sell, grant any option for sale of, or otherwise dispose of, any Preferred
Securities, any security convertible into or exchangeable into or exercisable
for Preferred Securities or Junior Subordinated Debentures or any debt
securities substantially similar to the Junior Subordinated Debentures or equity
securities substantially similar to the Preferred Securities (except for Junior
Subordinated Debentures and the Preferred Securities offered hereby).
Because the National Association of Securities Dealers, Inc. ("NASD") is
expected to view the Preferred Securities as interests in a direct participation
program, the offering of the Preferred Securities is being made in compliance
with the applicable provisions of Rule 2810 of the NASD's Conduct Rules.
Application has been made to have the Preferred Securities approved for
quotation on the Nasdaq National Market. The Representative has advised the
Trust that it presently intends to make a market in the Preferred Securities
after the commencement of trading on the Nasdaq National Market, but no
assurances can be made as to the liquidity of such Preferred Securities or that
an active and liquid trading market will develop or, if developed, that it will
continue. The offering price and distribution rate have been determined by
negotiations among representatives of the Company and the Underwriters, and the
offering price of the Preferred Securities may not be indicative of the market
price following the Offering. The Representative will have no obligation to make
a market in the Preferred Securities, however, and may cease market-making
activities, if commenced, at any time.
The Trust and the Company have agreed to indemnify the Underwriters
against, or contribute to payments that the Underwriters may be required to make
in respect of, certain liabilities, including liabilities under the Securities
Act.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Preferred
Securities, the enforceability of the Trust Agreement and the formation of the
Trust, will be passed upon by Morris, Nichols, Arsht & Tunnell, Wilmington,
Delaware, special Delaware counsel to the Company and the Trust. Certain legal
matters for the Company and the Trust, including matters relating to United
States federal income tax considerations and the validity of the Guarantee and
the Junior Subordinated Debentures, will be passed upon for the Company and the
Trust by Foley, Hoag & Eliot LLP, Boston, Massachusetts, counsel to the Company
and the Trust. Certain legal matters will be passed upon for the Underwriters by
Goodwin, Procter & Hoar LLP, Boston, Massachusetts. Foley, Hoag & Eliot LLP will
rely on the opinion of Morris, Nichols, Arsht & Tunnell as to matters of
Delaware law.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996, and for each of the years in the three-year period ended December
31, 1997, appearing in the 1997 Annual Report of the Company to its shareholders
and incorporated by reference in the Annual Report on Form 10-K for the year
ended December 31, 1997, have been incorporated by reference in this Prospectus
and in the Registration Statement of which this Prospectus forms a part, in
reliance upon the report of Arthur Andersen LLP, independent public accountants,
incorporated by reference herein, whose report thereon appears therein, and upon
the authority of said firm as experts in accounting and auditing.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated into this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1997; and
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 (attached hereto as Appendix B).
The following portions of the Company's 1997 Annual Report to Shareholders
(attached hereto as Appendix A) are incorporated into this Prospectus by
reference:
1. Management's Discussion and Analysis of Financial Condition and
Result of Operations; and
2. Selected Consolidated Financial Data, Consolidated Balance Sheets,
Consolidated Statements of Income, Consolidated Statements of Changes in
Shareholders' Equity, Consolidated Statements of Cash Flows, and Notes to
Consolidated Financial Statements.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY
OF ANY OR ALL OF THE FOREGOING DOCUMENTS INCORPORATED BY REFERENCE HEREIN (OTHER
THAN EXHIBITS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
IN SUCH DOCUMENTS). REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED TO: ABINGTON
BANCORP, INC., 536 WASHINGTON STREET, ABINGTON, MASSACHUSETTS 02351, ATTN: CHIEF
FINANCIAL OFFICER (TELEPHONE (781) 982-3200).
As used herein, the terms "Prospectus" and "herein" mean this Prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein do not purport to be complete, and
where reference is made to the particular provisions of such contract or other
document, such provisions are qualified in all respects by reference to all of
the provisions of such contract or other document.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material may also be obtained by
mail from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. If available, such information
also may be accessed through the Commission's electronic data gathering,
analysis and retrieval system ("EDGAR") via electronic means, including the
Commission's home page on the Internet (http://www.sec.gov). The Company's
common stock is traded on the Nasdaq National Market. Such reports, proxy
statements and other information concerning the Company also may be inspected at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-2 (the "Registration Statement") pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules relating thereto as
permitted by the rules and regulations of the
57
<PAGE> 59
Commission. For further information pertaining to the Company and the securities
offered hereby, reference is made to the Registration Statement and the exhibits
thereto. Items of information omitted from this Prospectus, but contained in the
Registration Statement, may be obtained at prescribed rates or inspected without
charge at the offices of the Commission set forth above. Any statements
contained herein concerning the provisions of any document are not necessarily
complete, and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such reference.
No separate financial statements of the Trust have been included herein.
The Company does not consider that such financial statements would be material
to holders of the Preferred Securities because (i) all of the voting securities
of the Trust will be owned by the Company, a reporting company under the
Exchange Act, (ii) the Trust has no independent operations but exists for the
sole purpose of issuing securities representing undivided beneficial interest in
the assets of the Trust and investing the proceeds thereof in the Junior
Subordinated Debentures issued by the Company, and (iii) the obligations of the
Company described herein to provide certain indemnities in respect of and be
responsible for certain costs, expenses, debts and liabilities of the Trust
under the Indenture and pursuant to the Trust Agreement, the guarantee issued by
the Company with respect to the Preferred Securities, and the Junior
Subordinated Debentures purchased by the Trust and the related Indenture, taken
together, constitute, in the belief of the Company and the Trust, a full and
unconditional guarantee of payments due on the Preferred Securities. See
"Description of the Junior Subordinated Debentures" and "Description of the
Guarantee."
The Trust is not currently subject to the information reporting
requirements of the Exchange Act. The Trust will become subject to such
requirements upon the effectiveness of the Registration Statement, although it
intends to seek and expects to receive an exemption therefrom.
58
<PAGE> 60
APPENDIX A
<PAGE> 61
[ABINGTON BANCORP APPLE PICTURE]
===========================
ABINGTON BANCORP
----------------------
1997 ANNUAL REPORT
===========================
<PAGE> 62
[ABINGTON BANCORP LEAF PICTURE] 1997
- ----------------------------------------------
A VERY SUCCESSFUL YEAR
---------------------------------------------------
1 | President's Message
9 | Financial Highlights
11 | Management's Discussion and Analysis
21 | Report of Independent Public Accountants
22 | Consolidated Balance Sheets
23 | Consolidated Statements of Operations
24 | Consolidated Statements of Changes in Stockholders' Equity
25 | Consolidated Statements of Cash Flows
27 | Notes to Consolidated Financial Statements
46 | Stockholder Information
47 | Bank Directors & Officers
Inside Back Cover | Corporate Information
Back Cover | Bank Locations
<PAGE> 63
CORPORATE PROFILE
Abington Bancorp, Inc. (the "Company") is a one-bank holding company which
owns all of the outstanding capital stock of Abington Savings Bank (the "Bank").
Abington Bancorp, Inc. was reestablished as the Bank's holding company on
January 31, 1997.
The Bank operated as a Massachusetts chartered mutual savings bank from its
incorporation in 1853 until June 1986 when the Bank converted from mutual to
stock form of ownership. From December 1992 to the present, the Bank has
operated as a stock-owned savings bank.
The Bank is engaged principally in the business of attracting deposits from
the general public, borrowing funds, and investing those deposits and funds. In
its investments, the Bank has emphasized various types of residential and
commercial real estate loans, residential construction loans, consumer loans,
and investments in securities. The Bank considers its principal market area to
be Plymouth County, Massachusetts, primarily Abington, Cohasset, Halifax,
Holbrook, Kingston, Whitman, Hull, and Pembroke where it has banking offices,
and nearby Rockland, Duxbury, Plympton, Brockton, Hanover, East Bridgewater,
Plymouth, Carver, Weymouth, Bridgewater, and Hanson.
The Bank's deposits are insured by the Federal Deposit Insurance
Corporation (the "FDIC") up to FDIC limits (generally $100,000 per depositor)
and by the Depositors Insurance Fund for deposits in excess of FDIC limits.
MISSION STATEMENT WE WILL PROVIDE SUCH EXTRAORDINARY SERVICE AND VALUE
THAT OUR CUSTOMERS WILL TELL THEIR FRIENDS AND
ASSOCIATES ABOUT US [ABINGTON BANCORP ASSOCIATES PICTURE]
<PAGE> 64
A MESSAGE FROM THE PRESIDENT
DEAR FELLOW SHAREHOLDERS:
[ABINGTON BANCORP PRESIDENT PHOTO]
Last year was a rewarding one for Abington Bancorp. Throughout 1997, we
enjoyed the fruit of the key business strategies we have aggressively pursued
since 1994. I am pleased with our overall results, but I am particularly proud
to be able to report to you, our stockholders, that a 24% increase in net income
and a 115.4% appreciation in stock price were among the significant benefits we
realized in 1997 from the value-building initiatives undertaken over the past
three years.
This solid performance is the outcome of many factors, including, of
course, the generally strong economy enjoyed by our market area last year. In
today's highly competitive banking industry, however, a good economy alone is
not enough to produce the positive results that brought us recognition from
several market indexes as one of the very top performers in stock appreciation
among Massachusetts banks. This accomplishment required skillful strategic
guidance from our Board of Directors and an outstanding effort from employees at
all levels. My sincere thanks goes to every individual who played a role in
making 1997 such a strong year for our institution.
Looking ahead, we are confident our increasingly diverse package of
financial products and services, along with our dedication to top-notch service,
will enable us to continue to serve our expanding customer base well. Equally
important, our healthy financial performance will allow us to bring enhanced
value to our community, both as an institution that supports business growth and
as a responsible corporate citizen. Our commitment to working in partnership
with our community remains unwavering, and we are pleased to be well positioned
to play a leading role in the growth and well-being of the towns we serve.
SOLID FINANCIAL PERFORMANCE
HIGHLIGHTS 1997
Here are some notable details of the Bank's strong financial performance in
1997. As already mentioned, our earnings strength was marked by a 24% increase
in net income, which rose to $4,378,000. Taking into account the 2-for-1 stock
split that was declared on November 14, 1997, this substantial rise in net
income resulted in diluted earnings per share of $1.10, compared to $.89 per
diluted share for 1996.
These excellent results were due primarily to our continued strong focus on
building our transaction accounts and using the deposit growth this generates to
increase our business loans. As deposits grew by 8%, rising from $300 million to
$325 million during the year, the Bank benefited in two ways. First, the overall
cost of funds on deposit and borrowed funds was brought down from 4.41% in 1996
to 4.35% in 1997. Second, customer service fees grew by 36%, reaching $3,276,000
for the year; this figure is particularly noteworthy because it indicates that
our emphasis on attracting new customers through our High Performance Checking
Program, which began in 1995, continues to produce extremely strong results.
Abington Bancorp ended the year with assets of $532 million, up from $487
million, or 9%, from 1996. This reflected strong commercial loan activity
throughout the year, which saw our business loan portfolio grow by $18 million,
a 61% increase. While we have experienced substantial growth in our
1
<PAGE> 65
portfolio over the past two years, we have also worked hard to assure the
quality of these assets. During 1997, non-performing assets dropped by 41.5% to
stand at $978,000 at year's end. Both this figure and our delinquency rate of
.42% mean that our current asset quality is outstanding by any measure.
The growth of our business loan portfolio helped produce a 9% rise in our
interest income, which reached $16,206,000. Also contributing to this increase
was a restructuring of our securities portfolio. This process, which began in
the second half of 1996 and continued during the first nine months of 1997,
involved selling various lower yielding securities and reinvesting those funds
in higher yielding securities. We were disciplined and extended out the maturity
on approximately $30 million of borrowed funds during the first quarter of 1997
to achieve better interest rate balance and stability.
Our return on equity for 1997 was 12.59%, up from 11% in 1996. This
represented the highest return on equity since Abington Savings Bank converted
from a mutual savings bank to stock form of ownership in 1986. This was a good
achievement for us in 1997 compared to historical results, and we hope to build
on it in the future.
All of the factors mentioned above, as well as our continued strong
emphasis on expense management, combined to produce the robust stock
appreciation of 115% mentioned earlier. From December 31, 1996, to December 31,
1997, taking into account the 2-for-1 stock split, the Company's stock price
rose from $9.75 to $21. In addition to building shareholder value through the
stock split, the Board of Directors approved the repurchase of up to 10% of
outstanding common stock in March of 1997. As of February 1998, the Company had
repurchased 295,500 shares out of a total of 375,000 authorized under the
Company's initial stock repurchase plan. At its February 1998 meeting, the Board
authorized the repurchase of an additional 10% of shares.
ASB OPENS ITS FIRST SUPERMARKET BRANCH OFFICE
In August, Abington Savings Bank opened the first of three planned supermarket
branches. Located in a new shopping plaza along busy Rte. 3A in Cohasset, the
branch, which is open seven days a week, met with immediate success and easily
achieved its year end deposit target.
YEAR END STOCK PRICE PER SHARE
Our solid performance continues to favorably impact our stock price
[YEAR END STOCK PHOTO]
1992: $ 4.25
1993: $ 5.75
1994: $ 6.00
1995: $ 8.63
1996: $ 9.75
1997: $21.00
Net Overhead
Our net overhead continues to decrease [NET OVERHEAD PHOTO]
1992: 2.37%
1993: 2.31%
1994: 2.18%
1995: 2.05%
1996: 1.88%
1997: 1.81%
2
<PAGE> 66
OUR BUSINESS BANKING
DIVISION HAS TAKEN
A LARGE BITE OUT OF THE
SOUTH SHORE'S BUSINESSES.
[ABINGTON APPLE (#2) PHOTO]
<PAGE> 67
GROWING THE FRANCHISE
One of the most exciting developments for Abington Savings Bank in 1997 was
the launch of our first supermarket branch which opened in Cohasset in August.
Two more supermarket branches will follow in 1998, in Hanson and Randolph. We
are extremely pleased to be working on this new initiative with Shaw's
Supermarkets, an organization with a strong reputation for quality and value.
These supermarket branches are an important and highly efficient mechanism
for extending our franchise to give us a greater presence throughout the South
Shore. Equally important, they are a natural tie-in with our strategy to
increase our core retail deposit relationships. Highly cost-effective, these
branches enable us to deliver a full array of services at a place and with hours
that are extremely convenient to customers. We've received a positive reception
in Cohasset and anticipate equal success with the additional supermarket
branches set to open this year.
Just as the supermarket branches are designed to provide the type of
one-stop shopping experience that consumers increasingly demand these days, the
reorganization of our Consumer Lending Department last year also provided an
important convenience to customers. While our Loan Center in Whitman continues
to serve as a processing center, we now have loan specialists working in each
branch, bringing these important services closer to our customers. Placing the
loan specialists in the branches also gives rise to more opportunities for
efficient cross-selling, thereby reinforcing the sales culture we have worked
hard to build over the past few years.
As a result of this reorganization, our retail lending operation
experienced strong profitability and exceeded its lending targets. Throughout
the year, many homeowners sought to take advantage of the prevailing low
interest rates to refinance their mortgages. We anticipate this market will
remain strong in 1998, and we expect the market for first mortgages to grow as
interest in South Shore housing continues to build, thanks in part to the return
of the commuter rail which runs through the heart of our market area.
At the same time we are reaching out to a broader customer base with
supermarket branches and more convenient loan service locations, more and more
customers are taking advantage of our growing range of 24-hour telebanking
services. Last year, our telebanking system averaged 30,000 calls per month, a
remarkable increase from the 6,000 calls per month we were receiving just two
years ago. Significant numbers of people are taking advantage of our telebanking
capabilities by opening deposit and checking accounts or initiating loans via
this fast, efficient and highly convenient method. In 1998, we will make yet
another technological advance by offering remote access banking via personal
computers to our business customers.
All of these positive developments in our retail banking operation--
especially the tremendous success of our High Performance Checking Program,
which has produced a 129% increase in the number of checking accounts since the
program was introduced in March 1995--have lead to a need to expand and renovate
our branch facilities to serve this constantly growing customer base. Much of
this work has already been accomplished over the past two years and more will
come during the next 12 to 18 months when we will be expanding our banking
offices and facilities to provide faster and more efficient customer service.
NON-PERFORMING ASSETS (dollars in thousands)
Our non-performing assets have decreased which is indicative of our asset
quality [NON-PERFORMING ASSETS PHOTO]
1992: $10,828
1993: $ 7,840
1994: $ 6,674
1995: $ 1,798
1996: $ 1,672
1997: $ 978
4
<PAGE> 68
OUR PIECE OF THE
RETAIL BANKING PIE HAS
GREATLY INCREASED.
[BANKING PIE PHOTO]
<PAGE> 69
BUSINESS BANKING SUCCESS CONTINUES
In 1997, the talented Business Banking team we put in place in 1996
continued to increase the presence and reputation of Abington Savings Bank
throughout our market's business community. The previously mentioned 61%
increase in our business lending portfolio was the very favorable result of
their efforts. Equally important, despite the highly competitive lending
environment that prevailed in the region in 1997, we continued to place loans of
high quality with good yields, a direct result of the extensive experience of
our lending staff.
Looking ahead, we will work to continue the expansion of Business Banking
at Abington Savings Bank, with the growth in our lending portfolio continuing to
be funded by core deposit growth. We will work to improve the margin between
loan cost and yield, although we expect this to be more challenging in 1998. At
the same time that the competition for good quality lending opportunities
continues to increase in our region, the yield curve has dramatically flattened.
However, we are confident that our strong focus on providing top-quality service
to businesses seeking financing will continue to enable us to compete
effectively.
ON THE HORIZON
As always, risk management continues to be a primary focus of our efforts
at Abington Savings Bank. Along with the rest of the business world, we took
steps in 1997 to begin to address any potential software problems related to the
so-called "year 2000 problem." Based on an extensive review of our internal
systems, we believe our analysis and reporting mechanisms are sound, and we have
a plan in place to deal with remaining issues involving the companies that
provide us with software.
As we continue to build on the successful business strategies that
accounted for the strong year we experienced in 1997, we also will pay
considerable attention to the need to move beyond traditional banking to offer
customers greater convenience and value through one-stop shopping for a full
range of financial services. This truly is the wave of the future, and Abington
Savings Bank intends to be a strong competitor by expanding into new,
complimentary areas, which may include mutual funds, property and casualty
insurance, and trust and financial planning services.
BENEFIT FOR CARDINAL CUSHING SCHOOL
The proceeds of our highly successful 2nd Annual St. Patrick's Day Dance to
benefit the Cardinal Cushing School and Training Center in Hanover enabled the
graduating class to enjoy a visit to Disney World. We are extremely proud of
this important community partnership and take great joy from the support we're
able to give to these wonderful children.
TOTAL ASSETS (dollars in thousands)
Our total assets continue to grow [TOTAL ASSETS PHOTO]
1992: $315,048
1993: $347,354
1994: $421,833
1995: $460,492
1996: $486,958
1997: $531,986
NET-INTEREST INCOME (dollars in thousands)
Our net-interest income continues to increase
1992: $ 9,648 [NET INTEREST INCOME PHOTO]
1993: $11,289
1994: $12,733
1995: $13,727
1996: $14,815
1997: $16,206
6
<PAGE> 70
Thanks to the strength of the customer base that High Performance Checking
has enabled us to build over the past two years, we are extremely well
positioned to take advantage of the numerous cross-selling opportunities that an
expansion of our products and services will provide. By improving our ability to
analyze the extensive customer data to which we now have access, we will be able
to efficiently develop and market new products and services that will strengthen
our customer relationships and improve our financial results still further over
the long term.
Finally, in 1998 we will continue to take an active interest in the broader
well-being of the communities we serve. We are especially pleased that in 1997,
our employees donated $15,000 through payroll deductions to the Cardinal Cushing
School and Training Center, which is the focus of a major partnership for the
Bank. We also hosted our 2nd Annual St. Patrick's Day Dance fund-raiser for the
school, an event that made it possible for the school to send the graduating
class of 22 exceptional children on the trip of a lifetime to Disney World.
This relationship is a significant unifying influence for our staff, our
customers and our business partners, and along with the many other community
donations we make, serves to remind us of the importance of giving back to the
people who live in the towns we serve.
I would be remiss if I did not note that 1997 marked the final full year of
service for an outstanding Board member, Robert J. Armstrong. He will step down
from the Board at our 1998 Annual Meeting, having reached the mandatory
retirement age. Bob has served this organization since 1971, longer than any
other current director. Throughout this lengthy tenure, he has always taken his
responsibility to shareholders extremely seriously, as shown by his excellent
preparation for meetings and his willingness to regularly challenge management,
as a good director should. As a successful business person and a great family
man, Bob has also been a tremendous role model for everyone at Abington Savings
Bank. On behalf of my fellow Board members, I wish to express our gratitude for
his unstinting dedication through the years.
As always, I also wish to thank all the rest of the Board of Directors and
all of our employees for helping to make 1997 a successful year on many fronts
for our organization. I am confident that, working together, we will continue to
build on this success in 1998.
Respectfully submitted,
/s/ James P. McDonough
James P. McDonough
President and Chief Executive Officer
LOANS (dollars in thousands)
High sales in home equity and business loans [LOANS PHOTO]
1992: $186,520
1993: $199,807
1994: $235,614
1995: $260,585
1996: $298,970
1997: $330,792
DEPOSITS (dollars in thousands)
Deposits are up due to totally free checking [DEPOSITS PHOTO]
1992: $202,105
1993: $209,911
1994: $246,843
1995: $280,070
1996: $300,445
1997: $324,934
7
<PAGE> 71
The Bank considers its
principal market area to be
Plymouth County,
Massachusetts,
primarily
Hull,
Cohassett,
Holbrook,
Abington,
Whitman,
Pembroke,
Halifax, and
Kingston,
where it has
banking offices.
[MAP OF BOSTON WITH ARROWS TO THE TOWNS OF HULL, COHASSET, HOLBROOK,
ABINGTON, WHITMAN, PEMBROKE, HALIFAX, KINGSTON]
8
<PAGE> 72
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
At December 31, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $531,986 $486,958 $460,492 $421,833 $347,354
Total loans, net 330,792 298,970 260,585 235,614 199,807
Investment securities (1) 47,187 31,950 33,343 28,328 15,915
Mortgage-backed investments 126,016 131,184 138,937 133,882 113,052
Deposits 324,934 300,445 280,070 246,843 209,911
Borrowed funds 165,910 147,524 145,609 134,155 106,921
Stockholders' equity 36,321 33,546 30,561 28,366 27,869
Book value per share (2) 9.99 8.86 8.11 7.57 7.45
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) (2)
<S> <C> <C> <C> <C> <C>
Operating Data:
Interest and dividend income $ 36,297 $34,332 $ 31,949 $ 27,082 $ 23,591
Interest expense 20,091 19,517 18,222 14,349 12,302
-------- -------- -------- -------- --------
Net interest income 16,206 14,815 13,727 12,733 11,289
Provision for possible loan losses 630 480 2,233 610 720
-------- -------- -------- -------- --------
Non-interest income:
Loan servicing fees 558 646 713 646 617
Customer service fees 3,276 2,412 1,644 1,050 759
Gain (loss) on sales of securities 540 495 181 322 459
Gain on sales of loans, net 236 315 453 389 890
Write-down of limited partnership - - (110) - -
Net gain (loss) on sales and write-down
of other real estate owned 109 67 (92) (2) (478)
Other 267 242 119 56 40
-------- -------- -------- -------- --------
Total non-interest income 4,986 4,177 2,908 2,461 2,287
-------- -------- -------- -------- --------
Non-interest expenses 13,505 12,840 11,955 10,255 8,771
-------- -------- -------- -------- --------
Income before income taxes and cumulative
effect of accounting change 7,057 5,672 2,447 4,329 4,085
Provision for income taxes 2,679 2,139 1,018 1,586 1,556
-------- -------- -------- -------- --------
Income before cumulative effect
of accounting change 4,378 3,533 1,429 2,743 2,529
Cumulative effect of accounting change - - - - 650
-------- -------- -------- -------- --------
Net income $ 4,378 $ 3,533 $ 1,429 $ 2,743 $ 3,179
======== ======== ======== ======== ========
Basic:
Earnings per share before cumulative
effect of accounting change $ 1.18 $ .94 $ .38 $ .73 $ .68
Cumulative effect of accounting change - - - - .17
-------- -------- -------- -------- --------
Basic earnings per share $ 1.18 $ .94 $ .38 $ .73 $ .85
======== ======== ======== ======== ========
Diluted:
Earnings per share before cumulative
effect of accounting change $ 1.10 $ .89 $ .37 $ .70 $ .66
Cumulative effect of accounting change - - - - .17
-------- -------- -------- -------- --------
Diluted earnings per share $ 1.10 $ .89 $ .37 $ .70 $ .83
======== ======== ======== ======== ========
Dividends per share $ .20 $ .20 $ .20 $ .20 $ -
======== ======== ======== ======== ========
</TABLE>
ABINGTON BANCORP, INC. 9 1997 ANNUAL REPORT
<PAGE> 73
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Ratios:
Return on average total assets .87% .74% .33% .70% .95%
Interest rate spread 3.29 3.14 3.14 3.32 3.37
Return on average equity 12.59 11.00 4.68 9.23 11.73
Dividend payout ratio 16.90 21.34 52.62 27.34 -
Average equity to average total assets 6.94 6.69 7.00 7.61 8.10
</TABLE>
(1) Includes Federal Home Loan Bank stock.
(2) The Company declared a 2-for-1 stock split in the form of a dividend to
holders of record on November 14, 1997. All share and per share data have
been adjusted to reflect this transaction.
ABINGTON BANCORP, INC. 10 1997 ANNUAL REPORT
<PAGE> 74
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
Abington Bancorp, Inc. (the "Company"), became the one-bank holding company for
the Abington Savings Bank (the "Bank") on January 31, 1997. The Company's
primary business is serving as the holding company of the Bank. The holding
company did not conduct any business in fiscal 1996.
The Company's results of operations depend primarily on its net interest income
after provision for possible loan losses, its revenue from loan fees and sales
and other banking services and non-interest expenses. The Company's net interest
income depends upon the net interest rate spread between the yield on the
Company's loan and investment portfolios and the cost of funds, consisting
primarily of interest expense on deposits and Federal Home Loan Bank advances.
The interest rate spread is affected by the match between the maturities or
repricing intervals of the Company's assets and liabilities, economic factors
influencing general interest rates, prepayment on loans and mortgage-backed
investments, loan demand and savings flows, as well as the effect of competition
for deposits and loans. The Company's net interest income is also affected by
the performance of its loan portfolio and in particular, the level of
non-earning assets. Revenues from loan fees and other banking services depend
upon the volume of new transactions and the market level of prices for
competitive products and services. Non-interest expenses depend upon the
efficiency of the Company's internal operations and general market and economic
conditions.
On June 26, 1995, the Company acquired a branch in Holbrook ("Holbrook") from
the Bank of Boston. Additionally, in August 1997, the Company also opened, in
Cohasset, the first of three planned de novo supermarket branches, with Randolph
and Hanson scheduled to open in 1998. This acquisition and expansion into
supermarket banking is consistent with the Company's strategy of controlled
growth with a focus on core retail deposit relationships and will enable the
Company to have a greater regional presence.
NET INTEREST INCOME
Net interest income is affected by the mix and volume of assets and liabilities,
and levels of prepayment primarily on loans and mortgage-backed investments, the
movement and level of interest rates, and interest spread, which is the
difference between the average yield received on earning assets and the average
rate paid on deposits and borrowings. The Company's net interest rate spread was
3.29% and 3.14% for the years ended December 31, 1997 and 1996.
The level of non-accrual loans and other real estate owned also has an impact on
net interest income. At December 31, 1997, the Company had $622,000 in
non-accrual loans and $265,000 in other real estate owned compared to $1,028,000
in non-accrual loans and $500,000 in other real estate owned as of December 31,
1996.
The Company's cost of funds remained essentially flat in 1997 from 1996 levels,
as total cost of funds was 4.65% in 1997 as compared to 4.68% in 1996. The
relatively low rates paid on deposit accounts by banks in general, compared with
generally historically high returns received in the equity market and from
non-bank competitors, such as mutual funds, continue to make deposit growth an
increasing challenge as some customers began to seek these alternate, higher
yielding investment sources. Management continues to re-evaluate other funding
alternatives and also the rates paid, compared to market, on time deposits and
other deposit gathering strategies. These conditions, in part, caused an
increase in borrowed funds in 1997 as compared to 1996 but have not had an
adverse impact on overall cost of funds as generally the Company has not paid a
premium rate to attract time deposits. Management believes that prudent deposit
growth will continue to be a challenge in the future and may adversely impact
cost of funds in the future.
The table on the following page presents average balances, interest income and
expense and yields earned or rates paid on the major categories of assets and
liabilities for the years indicated.
ABINGTON BANCORP, INC. 11 1997 ANNUAL REPORT
<PAGE> 75
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Earning assets:
Federal funds sold $ 544 $ 34 6.25% $ 614 $ 37 6.03% $ 621 $ 42 6.76%
Other short-term investments 221 16 7.24 75 4 5.33 434 25 5.76
Bonds and obligations (2) 25,025 1,775 7.09 23,489 1,512 6.44 23,774 1,536 6.46
Equity securities (1) 11,987 589 4.91 10,966 556 5.07 10,300 574 5.57
Mortgage-backed investments (2) 132,721 9,045 6.82 137,166 9,245 6.74 137,007 8,984 6.56
Loans (3) 304,925 24,838 8.15 282,530 22,978 8.13 243,949 20,788 8.52
-------- ------- -------- ------- -------- -------
Total earning assets 475,423 36,297 7.64 454,840 34,332 7.55 416,085 31,949 7.68
-------- ------- -------- ------- -------- -------
Cash and due from banks 9,786 8,348 7,028
Other assets 16,227 16,891 13,746
-------- -------- --------
Total assets $501,436 $480,079 $436,859
======== ======== ========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW deposits $ 37,256 $ 577 1.55% $ 33,392 $ 516 1.55% $ 26,083 $ 402 1.54%
Savings deposits 97,786 2,168 2.22 95,661 2,287 2.39 94,328 2,301 2.44
Time deposits 145,152 8,312 5.73 136,541 7,939 5.81 121,126 6,978 5.76
-------- ------- -------- ------- -------- -------
Total interest-bearing deposits 280,194 11,057 3.95 265,594 10,742 4.04 241,537 9,681 4.01
Short-term borrowings 45,833 2,557 5.58 66,790 3,733 5.59 73,719 4,546 6.17
Long-term debt 105,950 6,477 6.11 84,977 5,042 5.93 66,614 3,995 6.00
-------- ------- -------- ------- -------- -------
Total interest-bearing liabilities 431,977 20,091 4.65 417,361 19,517 4.68 381,870 18,222 4.77
------- -------- --------
Non-interest-bearing deposits 29,447 25,223 19,584
-------- -------- --------
Total deposits and
borrowed funds 461,424 4.35 442,584 4.41 401,454 4.54
Other liabilities 5,239 5,385 4,847
-------- -------- --------
Total liabilities 466,663 447,969 406,301
Stockholders' equity 34,773 32,110 30,558
-------- -------- --------
Total liabilities and
stockholders' equity $501,436 $480,079 $436,859
======== ======== ========
Net interest income $16,206 $14,815 $13,727
======= ======= =======
Interest rate spread (4) 3.29% 3.14% 3.14%
==== ==== ====
Net yield on earning assets (5) 3.41% 3.26% 3.30%
==== ==== ====
</TABLE>
(1) Includes Federal Home Loan Bank stock, investments held for investment and
available for sale (at amortized cost).
(2) Includes investments available for sale (at amortized cost).
(3) Non-accrual loans net of reserve for possible loan losses and loans held
for sale are included in average loan balances.
(4) Interest rate spread equals the yield on average earning assets minus the
yield on average deposits and borrowed funds.
(5) Net yield on earning assets equals net interest income divided by total
average earning assets.
ABINGTON BANCORP, INC. 12 1997 ANNUAL REPORT
<PAGE> 76
RATE/VOLUME ANALYSIS
The following table presents, for the periods indicated, the changes in interest
income and in interest expense attributable to the change in interest rates and
the change in the volume of earning assets and interest-bearing liabilities. The
change attribute able to both volume and rate has been allocated proportionately
to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 vs 1996 1996 vs 1995
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Increase (decrease) Increase (decrease)
Due to Due to Due to Due to
Volume Rate Total Volume Rate Total
--------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest and dividend income:
Loans $ 1,824 $ 36 $ 1,860 $3,171 $(981) $2,190
Bonds and obligations 103 160 263 (18) (6) (24)
Equity securities 51 (18) 33 36 (54) (18)
Mortgage-backed
investments (302) 102 (200) 10 251 261
Federal funds sold (4) 1 (3) - (5) (5)
Interest-bearing deposits
in banks 10 2 12 (19) (2) (21)
------- ----- ------- ------ ----- ------
Total interest and
dividend income 1,682 283 1,965 3,180 (797) 2,383
------- ----- ------- ------ ----- ------
Interest expense:
NOW deposits 60 1 61 113 1 114
Savings deposits 50 (169) (119) 32 (46) (14)
Time deposits 495 (122) 373 896 65 961
Short-term borrowings (1,170) (6) (1,176) (407) (406) (813)
Long-term debt 1,278 157 1,435 1,090 (43) 1,047
------- ----- ------- ------ ----- ------
Total interest expense 713 (139) 574 1,724 (429) 1,295
------- ----- ------- ------ ----- ------
Net interest income $ 969 $ 422 $ 1,391 $1,456 $(368) $1,088
======= ===== ======= ====== ===== ======
</TABLE>
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996
GENERAL
Net income for the year ended December 31, 1997 was $4,378,000 or $1.10 per
diluted share compared to $3,533,000 or $.89 per diluted share in 1996, an
increase of $845,000 or 23.9%. The growth in earnings is generally attributable
to increased net interest income, increases in customer service fee revenues and
controlled growth in non-interest expenses.
INTEREST AND DIVIDEND INCOME
Interest and dividend income increased $1,965,000 or 5.7% during 1997 as
compared to 1996. This increase was attributable to increases in earning assets,
particularly loans, and increases in the rates earned on investment securities,
including mortgage-backed investments and loans. The balance of average earning
assets was $475,423,000 in 1997 as compared to $454,840,000 in 1996, an increase
of $20,583,000 or 4.5%. This increase was generally caused by growth in the
Company's commercial loan portfolio in 1997 which had an average balance of
approximately $37,543,000 in 1997 as compared to $22,515,000 in 1996, an
increase of $15,028,000 or 66.7%. This increase is consistent with management's
strategy of diversifying the Company's asset-mix by increasing loan growth,
particularly higher yielding commercial loans. The remaining asset growth was
generated from residential loan purchases and originations partially offset by
decreases in the Company's investment and mortgage-backed securities portfolios.
The combined average balance of investments, including equity and
mortgage-backed securities, decreased to $169,733,000 in 1997, a decrease of
approximately $1,888,000 or 1.1% from 1996 average levels of $171,621,000. See
"Liquidity and Capital Resources" and "Asset/Liability Management" for a further
discussion of the Company's investment strategies. As a result of this strategy,
the average yield on interest earning assets increased in 1997 to 7.64% from
7.55% in 1996. Yields on loans increased slightly to 8.15% in 1997 from 8.13% in
1996. Increases due to greater concentrations of commercial loans generally
offset the declining interest rates on residential mortgage loans originated/
purchased over the second half of 1997 as well as declining yields on those
portfolios as the result of customer refinancings into lower yielding loans. The
yields on investment, excluding equities, and mortgage-backed securities
portfolios were 7.09% and 6.82%, respectively, as compared to 6.44% and 6.74%,
respectively, in 1996. This increase in yield, despite the generally declining
long-term interest rate environment, was achieved through the sale of various
lower yielding securities held by the Company in its portfo-
ABINGTON BANCORP, INC. 13 1997 ANNUAL REPORT
<PAGE> 77
MANAGEMENT'S DISCUSSION AND ANALYSIS
lio of securities available for sale and the acquisition of securities at higher
yields, primarily during the second half of 1996 and the first 9 months of 1997.
INTEREST EXPENSE
Interest expense in 1997 increased $574,000 or 2.9% as compared to 1996
generally due to increases in deposit balances and higher rates paid on borrowed
funds. This increase was partially offset by decreases in the average rates paid
on deposits. The average balance of core deposits (NOW accounts, savings and
money markets) and time deposits rose to $164,489,000 and $145,152,000,
respectively, in 1997 as compared to $154,276,000 and $136,541,000,
respectively, in 1996 for increases of $10,213,000 (or 6.6%) and $8,611,000 (or
6.3%), respectively. These increases reflect the success of management's
strategy to attract retail, core deposit relationships and increasing deposit
balances. The overall cost of interest bearing deposits decreased to 3.95% in
1997 from 4.04% in 1996 despite a continued competitive market for deposit
relationships. This is generally attributable to the Company's continued growth
in less expensive core deposit accounts as well as decreases in overall rates
paid on time deposits. While rates paid on time deposits have generally remained
flat for most of 1997, the overall cost has declined due to customers shifting
to shorter-maturity time deposits. The trend of shorter-term time deposits is
expected to continue in future periods should the current rate environment
continue with longer-term interest rates remaining relatively low in comparison
to short-term rates. The Company will manage its cost of deposits by continuing
to seek new methods of acquiring core deposits, by maintaining its current core
deposits at reasonable rates in comparison to local markets and by utilizing
funding alternatives, including borrowings.
Average balances of borrowed funds remained flat at $151,783,000 in 1997 as
compared to $151,767,000 in 1996. The overall weighted cost of borrowed funds
increased to 5.95% in 1997 from 5.78% in 1996. This increase in cost of borrowed
funds was generally due to management's decision to extend approximately
$28,000,000 of borrowings from short-term to longer-term maturities at the end
of the first quarter of 1997. This strategy in part offset the trend of growth
in shorter-term maturity time deposits, as noted above, and provided further
protection against potential rising interest rates. The Company will continue to
evaluate the use of borrowings as an alternative funding source for asset growth
in future periods. See "Asset/Liability Management" for further discussion of
the competitive market for deposits and overall strategies for uses of borrowed
funds.
NON-INTEREST INCOME
Total non-interest income increased $809,000 or 19.4% in 1997 as compared to
1996. Customer service fees, which were $3,276,000 in 1997 as compared to
$2,412,000 in 1996, increased $864,000 or 35.8%. This increase is consistent
with increases in core deposit accounts, particularly NOW and checking accounts.
Non-interest income was also favorably impacted by the sales of various other
real estate owned properties at better than anticipated prices. Income related
to the sales of other real estate owned was $109,000 in 1997 and $67,000 in
1996.
Gains on securities were $540,000 in 1997, an increase of $45,000 or 9.1% over
1996 levels. These gains were reflective of the strong equity markets
experienced over the past 2 years.
Gains on sales of mortgages and loan servicing income decreased during 1997 to
$236,000 and $558,000, respectively, from $315,000 and $646,000, respectively,
in 1996. This reflects management's decision in 1996 to sell most of its
residential loan production on a servicing released basis, as well as fewer
loans being originated for sale in 1997. The average balances of loans serviced
for others declined to $224,450,000 in 1997 from $235,949,000 in 1996, a decline
of 4.9%. The loan servicing income for 1997 was further negatively impacted by
the accelerated amortization of mortgage servicing rights (approximately
$76,000) given the acceleration of estimated prepayments on the related loan
servicing pools. Declining trends in loan servicing income are expected to
continue due to the Company's current strategy of selling wholesale mortgage
production on a servicing released basis.
NON-INTEREST EXPENSE
Non-interest expense for 1997 increased $665,000 or 5.2% over 1996 levels.
Salaries and employee benefits increased 9.6% or $585,000 generally due to
increases in health insurance costs and staffing levels of the Company's
business banking and retail areas, including the Cohasset supermarket branch.
Additionally, costs associated with the Company's employee stock plan and other
incentive compensation expenses increased by approximately $280,000 over 1996
levels as the result of the increase in the Company's stock price during 1997
and also because certain performance-related incentives were met as a result of
the improved financial performance of the Company in 1997.
Occupancy and equipment expenses increased $46,000 or 1.9% primarily due to the
opening of the Cohasset branch and other minor inflationary increases. Other
non-interest expenses increased $34,000 or .8%, primarily as the result of
increased advertising expenses and other costs associated with the Company's
retail banking efforts and the opening of the Cohasset branch.
PROVISION FOR POSSIBLE LOAN LOSS
The provision for possible loan losses was $630,000 for 1997 as compared to
$480,000 for 1996. This increase of $150,000 primarily reflects the increased
risk associated with increases in the Company's commercial loan portfolio as
compared to residential lending.
PROVISION FOR INCOME TAXES
The Company's effective income tax rate for 1997 was 38.0% compared to 37.7% for
1996. The lower effective tax rate in comparison to statutory rates for both
periods is reflective of the levels of income earned by certain non-bank
subsidiaries which are taxed, for state tax purposes, at lower rates.
ABINGTON BANCORP, INC. 14 1997 ANNUAL REPORT
<PAGE> 78
MANAGEMENT'S DISCUSSION AND ANALYSIS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995
GENERAL
Net income for the year ended December 31, 1996 was $3,533,000 or $.89 per
diluted share compared to $1,429,000 or $.37 per diluted share in 1995, an
increase of $2,104,000 or 147.2%. The key factor impacting the level of earnings
for 1995 was management's decision to aggressively dispose of a significant
portion of the Company's non-accrual and certain "high maintenance" loans which
resulted in a special provision for loan losses of $1,654,000 and increases in
other non-interest expenses of $150,000 due to other related costs during 1995.
The overall improvement in net income from core operating activities in 1996 as
compared to 1995 was mainly attributable to increases in customer service fees
and net interest income.
INTEREST AND DIVIDEND INCOME
Interest and dividend income increased $2,383,000 or 7.5% during 1996 as
compared to 1995. This increase was attributable to increases in earning assets
that were partially offset by general decreases in the rates earned on those
assets. The balance of average earning assets was $454,840,000 in 1996 as
compared to $416,085,000 in 1995, an increase of $38,755,000 or 9.3%. The
increase in average earning assets was primarily due to increases in the
Company's loan portfolio which grew from an average balance of $243,949,000 in
1995 to $282,530,000 in 1996, an increase of $38,581,000 or 15.8%. This increase
was primarily due to the acquisition of various residential loan pools made
throughout the year. See "Liquidity and Capital Resources" and "Asset/Liability
Management" for further discussion of the Company's investment strategies. The
average yield on interest earning assets declined in 1996 to 7.55% as compared
to 7.68% in 1995 due to overall declines in the yields on loans originated and
purchased. The yield on loans for 1996 was 8.13% as compared to 8.52% in 1995.
These declines were generally caused by continued declines in interest rates
from 1995 through the first 4 months of 1996, which impacted new
purchases/originations as well as generating higher prepayments on higher
yielding loans held in the Company's portfolio over the same period. Yields on
mortgage-backed securities increased from 6.56% in 1995 to 6.74% in 1996 due to
a combination of favorable yield adjustments on adjustable rate mortgage-backed
securities as well as the result of higher yields obtained due to certain
investment purchases which took place in the third quarter of 1996 which
replaced lower yielding securities which were sold in the same period.
INTEREST EXPENSE
Interest expense in 1996 increased $1,295,000 or 7.1% as compared to 1995
generally due to increases in the average balances of time deposits and
borrowings and overall growth in the Company's core deposit portfolio. The
average balances of deposits and borrowed funds were $290,817,000 and
$151,767,000, respectively, in 1996 as compared to $261,121,000 and
$140,333,000, respectively, in 1995. The increases in average deposit balances
was primarily due to the acquisition of the Holbrook branch in June 1995
(represents approximately $8 million of the increase in average balances) and
other general deposit growth which reflected management's continued focus on
expanding the Company's core deposit base. The average balances of interest
bearing NOW and non-interest bearing deposits accounts increased $12,948,000 or
28.4% in 1996 (of which approximately $2 million related to Holbrook). This was
generally reflective of the Company's success in its focused promotion
activities to attract checking accounts in 1996. Also, the average balances of
time deposits increased 12.7% or $15,415,000 in 1996 as compared to 1995 which
was generally reflective of customers' desire to attain higher yields than were
being offered by banks' core deposit rates in the Company's market area. Also,
the weighted average of borrowings increased $11,434,000 in 1996 as compared to
1995 generally due to the timing of various loan purchases in 1995 and 1996.
Overall balances of borrowings outstanding at December 31, 1996 were
$147,524,000 which was relatively consistent with the $145,609,000 outstanding
at December 31, 1995.
The weighted average rate paid on interest-bearing liabilities was 4.68% in 1996
as compared to 4.77% in 1995. The weighted average rate paid on interest-bearing
deposits was 4.04% in 1996 as compared to 4.01% in 1995. This increase was
generally attributable to increases in the weighted average rate paid on time
deposits in 1996 as compared to 1995, and the fact that the 1996 average rate
reflects the full year impact of the shift of approximately $10 million of core
deposits to certificates of deposit during the first half of 1995. This shift
was representative of customers' desire, given the market's unwillingness to
increase the rates paid on core deposits, to find higher yields for their
deposits. While rates paid on certificates of deposit declined somewhat from
early 1995 to the end of 1996, the potential impact of such rate changes had not
been fully reflected in the Company's cost of funds in 1996 given that the rates
paid on certificates of deposit are generally fixed for the duration of the
contract.
As of December 31, 1996, the weighted average rate paid on certificates of
deposit with a remaining term of 1 year or less (totaling approximately
$89,073,000) was approximately 5.49%. If those certificates had rolled over for
similar remaining terms at the rates offered as of December 31, 1996, the
weighted average paid on such deposits would decline to approximately 4.86%. See
"Asset/Liability Management" for further discussion of the competitive market
for deposits.
The weighted average rate paid on borrowings decreased to 5.78% in 1996 from
6.09% in 1995. This decrease generally coincided with decreases in rates
established by the Federal Reserve in early 1996. See "Liquidity and Capital
Resources" for further discussion of the Company's borrowed funds.
NON-INTEREST INCOME
Total non-interest income increased $1,269,000 or 43.6% in 1996 as compared to
1995. Customer service fees, which were $2,412,000 in 1996 as compared to
$1,644,000 in 1995, increased $768,000 or 46.7%. This increase was primarily
attributable to growth in core deposit accounts, particularly NOW and checking
account portfolios in 1996. The Company also realized net gains on sales of
other real estate owned of $67,000 in 1996 as compared to net losses of $92,000
in 1995. This was reflective of improved market conditions for properties held
in other real estate owned in 1996 as compared to 1995 and the overall reduced
risk on the valuation of properties that the Company held in other real estate
owned in 1996 as compared to 1995. Additionally, the Company wrote-off a real
estate limited partnership investment, in full, in 1995 for which there was no
corresponding write-down in 1996.
The growth in non-interest income was also affected by increases in gains on
sales of securities which were $495,000 in 1996 as compared to $181,000 in 1995.
These gains were generally reflective of the strong equity market in 1996 and
were also net of losses taken on sales of lower yielding mortgage-backed
securities which was done as part of an effort to increase future yields on that
portfolio. Non-interest income was adversely impacted by decreases in gains on
sales of mortgages from $453,000 in 1995 to $315,000 in 1996. The results for
1995 were favorably impacted by a gain of approximately $175,000 on the sale of
approximately $7,200,000 of seasoned 20-year and 30-year fixed rate mortgages.
Excluding the impact of
ABINGTON BANCORP, INC. 15 1997 ANNUAL REPORT
<PAGE> 79
MANAGEMENT'S DISCUSSION AND ANALYSIS
this sale, the gains on sales of mortgages were actually $37,000 less in 1995
than those levels in 1996. This was in part due to the Company's prospective
adoption of FASB No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS No.
122") as of January 1, 1996. See Note 1 to the Consolidated Financial Statements
for further discussion. Loan servicing fees also declined $67,000 or 9.4% in
1996 as compared to 1995 due to general declines in the balances of loans
serviced for others which were $252,940,000 at December 31, 1995 as compared to
$235,949,000 at December 31, 1996.
NON-INTEREST EXPENSE
Non-interest expense increased by $885,000 or 7.4% in 1996 as compared to 1995.
Salaries and employee benefits increased 7.8% or $440,000 primarily due to the
acquisition of the Holbrook branch in June 1995 and other cost of living or
inflationary increases for salaries of employees and other related costs.
Occupancy expense increased $364,000 or 18.1% primarily due to costs associated
with additional investments in and higher maintenance costs associated with the
Company's computer system and the acquisition of the Holbrook branch. Other
non-interest expenses also increased $81,000 or 1.88%, generally due to
increased marketing efforts associated with Holbrook and other checking account
promotions which were partially offset by decreases of approximately $150,000 in
other costs which were incurred in 1995 related to the Company's sale of certain
non-accrual and "high maintenance" loans. The Company also benefited from
declines in the FDIC assessment rate in 1996 as compared to 1995. In 1996, the
Bank paid FDIC assessments at the minimum rate available of $2,000 per year. In
1995, the Bank also paid the lowest available rate; however, the rate of
assessment was $.23 per $100 of deposits for the first 6 months of 1995 and $.04
per $100 of deposits per annum for the second half of 1995.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses was $480,000 for 1996 as compared to
$2,233,000 for 1995. The decrease of $1,753,000 primarily reflects provisions
taken in connection with the Company's sale of certain non-performing and "high
maintenance" loans at a discounted price in the third quarter of 1995 for which
there was no corresponding provision in 1996.
PROVISION FOR INCOME TAX
The Company's effective tax rate for 1996 was 37.7% as compared to 41.6% in
1995. The decrease in the effective tax rate from 1995 was due to certain
statutory tax limitations associated with the state tax benefits related to the
loss on sales of loans and the effect of estimated tax recapture associated with
management's write-off of a real estate limited partnership investment during
1995. The decrease in the effective tax rate for 1996 in comparison to statutory
rates is generally reflective of the levels of income earned by certain non-bank
subsidiaries which are taxed for state tax purposes at lower rates.
ASSET/LIABILITY MANAGEMENT
The objective of asset/liability management is to ensure that liquidity, capital
and market risk are prudently managed. Asset/liability management is governed by
policies reviewed and approved annually by the Company's Board of Directors
(Board). The Board delegates responsibility for asset/liability management to
the corporate Asset/Liability Management Committee (ALCO). ALCO sets strategic
directives that guide the day-to-day asset/liability management activities of
the Company. ALCO also reviews and approves all major funding, capital and
market risk-management programs. ALCO is comprised of members of management and
executive management of the Company and the Bank.
Interest rate risk is the sensitivity of income to variations in interest rates
over both short-term and long-term time horizons. The primary objective of
interest rate risk management is to control this risk within limits approved by
the Board and by ALCO. These limits and guidelines reflect the Company's
tolerance for interest rate risk. The Company attempts to control interest rate
risk by identifying potential exposures and developing tactical plans to address
such potential exposures. The Company quantifies its interest rate risk
exposures using sophisticated simulation and valuation models, as well as a more
simple gap analysis. The Company manages its interest rate exposures by
generally using on-balance sheet strategies, which is most easily accomplished
through the management of the durations and rate sensitivities of the Company's
investments, including mortgage-backed securities portfolios, and by extending
or shortening maturities of borrowed funds. Additionally, pricing strategies,
asset sales and, in some cases, hedge strategies are also considered in the
evaluation and management of interest rate risk exposures.
The Company uses simulation analysis to measure the exposure of net interest
income to changes in interest rates over a 1 to 5 year time horizon. Simulation
analysis involves projecting future interest income and expense from the
Company's assets, liabilities, and off-balance sheet positions under various
interest rate scenarios.
The Company's limits on interest rate risk specify that if interest rates were
to ramp up or down 200 basis points over a 12 month period, estimated net
interest income for the next 12 months should decline by less than 10%. The
following table reflects the Company's estimated exposure, as a percentage of
estimated net interest income for the next 12 months, which does not materially
differ from the impact on net income, on the above basis:
Rate Change Estimated Exposure as a
(Basis Points) % of Net Interest Income
- -----------------------------------------------
+200 1.8%
-200 .3%
The Company uses valuation analysis to provide insight into the exposure of
earnings and equity to changes in interest rates based on the balance sheet
position of the Company at a set point in time without regard to potential
future strategic changes. Valuation analysis involves projecting future cash
flows from the Company's assets, liabilities and off-balance sheet positions
and then discounting such cash flows at appropriate interest rates. The
Company's economic value of equity is the estimated net present value of its
assets, liabilities and off-balance sheet positions.
The Company's limits on interest rate risk specify that if interest rates were
to shift immediately up or down 200 basis points, the estimated economic value
of equity should decline by less than 25%. The following table reflects the
Company's estimated exposure as a percentage of estimated economic value of
equity assuming an immediate shift in interest rates:
Rate Change Estimated Exposure as a
(Basis Points) % of Economic Value
- ----------------------------------------------
+200 (6.5)%
-200 (17.5)%
Interest rate gap analysis provides a static view of the maturity and repricing
characteristics of the on-balance sheet and off-balance sheet positions. The
interest rate gap analysis is prepared by scheduling all assets, liabilities and
off-balance sheet positions according to scheduled repricing or maturity.
Interest rate gap analysis can be viewed as a short-hand complement to
simulation and valuation analysis.
ABINGTON BANCORP, INC. 16 1997 ANNUAL REPORT
<PAGE> 80
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company's limits on interest rate risk specify that rate sensitive assets be
maintained at at least 40% of rate sensitive liabilities at the cumulative
1-year gap, as presented on a basis consistent with methods prescribed by
generally accepted accounting principles. As of December 31, 1997, the Company
was liability sensitive with rate sensitive assets at 61.8% of rate sensitive
liabilities at the 1-year gap.
The Company's policy is to match, as well as possible, the interest rate
sensitivities of its assets and liabilities. Residential mortgage loans, which
the Company currently originates or purchases for the Company's own portfolio,
are primarily 1-year and 3-year adjustable rate mortgages. Fixed rate
residential mortgage loans originated by the Company are primarily sold in the
secondary market, although in each year since 1989 the Bank has originated or
purchased approximately $30,000,000 primarily in shorter-term fixed rate
mortgage loans (generally 10-years to 15-years) to be held in portfolio in order
to provide a hedge against the Company's asset sensitivity.
The Company also emphasizes loans with terms to maturity or repricing of 3 years
or less, such as certain adjustable rate residential mortgage loans, commercial
mortgages, business loans, residential construction loans, second mortgages and
home equity loans.
In addition, to help manage interest rate sensitivity, in July 1994, the Company
entered into an interest rate swap agreement with an international investment
banking firm whereby the Company received a fixed rate of interest of 5.35% and
paid interest based on the 6 month floating LIBOR rate which reset semi-annually
(February and August). The notional amount of this swap was initially
$15,000,000. This amount amortized down at a rate consistent with the
amortization and prepayments of a referenced pool of residential mortgages as
specified in the agreement. In addition to the fixed rate of interest, the
Company also received a discount of $300,000 from the investment banking firm in
cash upon execution of this agreement. This discount was accreted to income over
the life of the swap agreement at a rate consistent with the payment and
prepayment levels of the referenced pool of mortgages. The resulting yield
received by the Company including the impact of this accretion was approximately
6.25%. This agreement expired on August 25, 1997. The Company had entered into
this agreement as a micro-hedge against its 1-year adjustable rate mortgage
portfolio (including those held as mortgage-backed securities). Interest income
(expense) associated with this swap was recognized generally by the accrual
method with monthly settlements. Management did not renew this interest rate
swap.
Management desires to expand its interest-earning asset base in future periods
primarily through growth in the Company's loan portfolio. Loans comprised
approximately 64.1% of the average interest earning assets in 1997. In the
future, the Company intends to be competitive in the residential mortgage market
but plans to place greater emphasis on consumer and commercial loans. The
Company also has been, and expects to remain, active in pursuing wholesale
opportunities to purchase loans. During 1997 and 1996, the Company acquired
approximately $57,800,000 and $36,200,000, respectively, of residential first
mortgages.
The Company has also used mortgage-backed investments (typically with weighted
average lives of 5 to 7 years) as a vehicle for fixed and adjustable rate
investment and as an overall asset/liability tool. These securities have been
highly liquid given current levels of prepayments in the underlying mortgage
pools and, as a result, have provided the Company with greater reinvestment
flexibility.
The level of the Company's liquid assets and the mix of its investments may
vary, depending upon management's judgment as to market trends, the quality of
specific investment opportunities and the relative attractiveness of their
maturities and yields. Management has been aggressively promoting the Company's
core deposit products since the first quarter of 1995, particularly checking and
NOW accounts. The success of this program has favorably impacted the overall
deposit growth to date, despite interest rate and general market pressures, and
has helped the Company to increase its customer base.
However, given the strong performance of money mutual funds and the equity
markets in general, the Company and many of its peers have begun to see lower
levels of growth in time deposits as compared to prior years as customers
reflect their desire to increase their returns on investment. This pressure has
been exacerbated currently by the historically low long-term economic interest
rates. Management believes that the markets for future time deposit growth,
particularly with terms in excess of 2 years, will remain highly competitive.
Management will continue to evaluate future finding strategies and alternatives
accordingly as well as continuing to focus its efforts on attracting core,
retail deposit relationships.
The Company is also a voluntary member of the Federal Home Loan Bank ("FHLB") of
Boston. This borrowing capacity assists the Company in managing its
asset/liability growth because, at times, the Company considers it more
advantageous to borrow money from the FHLB of Boston than to raise money through
non-core deposits (i.e., certificates of deposit). Borrowed funds totaled
$165,910,000 at December 31, 1997 compared to $147,524,000 at December 31, 1996.
These borrowings are primarily comprised of FHLB of Boston advances and have
primarily funded residential loan originations and purchases as well as
mortgage-backed investments and investment securities.
The following table sets forth maturity and repricing information relating to
interest sensitive assets and liabilities at December 31, 1997. The balance of
such accounts has been allocated among the various periods based upon the terms
and repricing intervals of the particular assets and liabilities. For example,
fixed rate mortgage loans and mortgage-backed securities, regardless of held in
portfolio or available for sale classification, are shown in the table in the
time periods corresponding to projected principal amortization computed based on
their respective weighted average maturities and weighted average rates using
prepayment data available from the secondary mortgage market. Adjustable rate
loans and securities are allocated to the period in which the rates would be
next adjusted. The following table does not reflect partial or full prepayment
of certain types of loans and investment securities prior to scheduled
contractual maturity. Since regular passbook savings and NOW accounts are
subject to immediate withdrawal, such accounts have been included in the "Other
Savings Accounts" category and are assumed to mature within 6 months. This table
does not include non-interest bearing deposits.
While this table presents a cumulative negative gap position in the 6 month to 5
year horizon, the Company considers its earning assets to be more sensitive to
interest rate movements than its liabilities. In general, assets are tied to
increases that are immediately impacted by interest rate movements while deposit
rates are generally driven by market area and demand which tend to be less
sensitive to general interest rate changes. In addition, other savings accounts
and money market accounts are substantially stable core deposits, although
subject to rate changes. A substantial core balance in these type of accounts is
anticipated to be maintained over time.
ABINGTON BANCORP, INC. 17 1997 ANNUAL REPORT
<PAGE> 81
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<CAPTION>
Repricing/Maturity Interval
- ----------------------------------------------------------------------------------------------------------------------------------
At December 31, 1997 0-6 Mos. 6-12 Mos. 1-2 Yrs. 2-3 Yrs. 3-5 Yrs. Over 5 Total Total
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets subject to interest rate
adjustment:
Short-term investments $ 163 $ - $ - $ - $ - $ - $ 163
Bonds and obligations 3,683 4,181 3,997 2,068 3,000 16,961 33,890
Mortgage-backed investments 32,254 27,009 10,529 9,258 15,556 30,692 125,298
Mortgage loans subject to rate
review 40,671 17,961 22,826 30,938 16,365 - 128,761
Fixed rate mortgage loans 45,759 34,761 51,350 27,907 20,846 4,216 184,839
Commercial and other loans
contractual maturity 8,483 3,143 2,978 2,180 2,688 - 19,472
--------- --------- -------- -------- -------- ------- --------
Total 131,013 87,055 91,680 72,351 58,455 51,869 492,423
--------- --------- -------- -------- -------- ------- --------
Liabilities subject to interest
rate adjustment:
Money market deposit accounts 15,477 - - - - - 15,477
Savings deposits - term
certificates 57,039 45,642 25,214 18,632 5,804 - 152,331
Other savings accounts 123,201 - - - - - 123,201
Borrowed funds 81,410 30,000 19,000 18,000 17,000 500 165,910
--------- --------- -------- -------- -------- ------- --------
Total 277,127 75,642 44,214 36,632 22,804 500 456,919
--------- --------- -------- -------- -------- ------- --------
Excess (deficiency) of rate
sensitive assets over rate
sensitive liabilities (146,114) 11,413 47,466 35,719 35,651 51,369 35,504
--------- --------- -------- -------- -------- ------- --------
Cumulative excess (deficiency) of
rate sensitive assets over rate
sensitive liabilities (1) $(146,114) $(134,701) $(87,235) $(51,516) $(15,865) $35,504
========= ========= ======== ======== ======== =======
Rate sensitive assets as a percent
of rate sensitive liabilities 47.3% 61.8% 78.0% 88.1% 96.5% 107.8%
</TABLE>
(1) Cumulative as to the amounts previously repriced or matured. Assets held
for sale are reflected in the period in which sales are expected to take
place. Securities classified as available for sale are shown at
repricing/maturity intervals as if they are to be held to maturity as there
is no definitive plan of disposition. They are also shown at amortized
cost.
ABINGTON BANCORP, INC. 18 1997 ANNUAL REPORT
<PAGE> 82
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
Payments and prepayments on the Company's loan and mortgage-backed investment
portfolios, sales of fixed rate residential loans, increases in deposits,
borrowed funds and maturities of various investments comprise the Company's
primary sources of liquidity. The Company is also a voluntary member of the FHLB
of Boston and, as such, is entitled to borrow an amount up to the value of its
qualified collateral that has not been pledged to outside sources. Qualified
collateral generally consists of residential first mortgage loans, securities
issued, insured or guaranteed by the U. S. Government or its agencies, and funds
on deposit at the FHLB of Boston. Short-term advances may be used for any sound
business purpose, while long-term advances may be used only for the purpose of
providing funds to finance housing. At December 31, 1997, the Company had
approximately $80,000,000 in unused borrowing capacity that is contingent upon
the purchase of additional FHLB of Boston stock. Use of this borrowing capacity
is also impacted by capital adequacy considerations.
The Company's short-term borrowing position consists primarily of FHLB of Boston
advances with original maturities of approximately 1 to 3 months. The Company
utilizes borrowed funds as a primary vehicle to manage interest rate risk, due
to the ability to easily extend or shorten maturities as needed. This enables
the Company to adjust its cash needs to the increased prepayment activity in its
loan and mortgage-backed investment portfolios, as well as to quickly extend
maturities when the need to further balance the Company's GAP position arises.
The Company regularly monitors its asset quality to determine the level of its
loan loss reserves through periodic credit reviews by members of the Company's
Management Credit Committee. The Management Credit Committee, which reports to
the Executive Committee of the Company's Board of Directors, also works on the
collection of non-accrual loans and disposition of real estate acquired by
foreclosure. The allowance for possible loan losses is determined by the
Management Credit Committee after consideration of several key factors
including, without limitation: potential risk in the current portfolio, levels
and types of non-performing assets and delinquency, and the expectations for the
future state of the regional economy and the potential impact that it may have
on loan collateral and future delinquencies. Workout approach and financial
condition of borrowers are also key considerations to the evaluation of
non-performing loans. Non-performing assets were $978,000 at December 31, 1997,
compared to $1,672,000 at December 31, 1996, a decrease of $694,000 or 41.5%.
The Bank's ratio of delinquent loans to total loans was .42% at December 31,
1997, as compared to .72% at December 31, 1996. Management believes that overall
trends in delinquencies and non-performing assets will continue to be favorable
in 1998.
During 1997, the Company maintained a general reserve for other real estate
owned in light of the level of foreclosures, softness of the local real estate
market (particularly commercial) and costs associated with selling properties.
No provisions were made for possible losses on other real estate owned in 1997.
The balance of the general other real estate owned reserves at December 31, 1997
was approximately $60,000 compared to $159,400 at December 31, 1996.
There continues to be uncertainties regarding future events, particularly in
both the New England real estate market and the general economy. These events
could result in additional charge-offs, write-offs, changes in the level of the
allowance for loan or OREO losses and/or in the level of loans on non-accrual or
in foreclosure.
At December 31, 1997, the Company had outstanding commitments to originate and
sell residential mortgage loans in the secondary market amounting to $2,003,000
and $1,415,000, respectively. The Company also has outstanding commitments to
grant advances under existing home equity lines of credit amounting to
$11,230,000. Unadvanced commitments under outstanding commercial and
construction loans totaled $10,764,000 as of December 31, 1997. The Company
believes it has adequate sources of liquidity to fund these commitments.
The Company's total stockholders' equity was $36,321,000 or 6.8% of total assets
at December 31, 1997, compared with $33,546,000 or 6.9% of total assets at
December 31, 1996. The increase in total stockholders' equity of approximately
$2,776,000 or 8.3% primarily resulted from earnings of the Company and increases
in the market value of its portfolio of available for sale securities, net of
applicable taxes, offset, in part, by dividends paid and the effect of the
Company's stock repurchase program. In accordance with current guidelines, the
net unrealized gain on available for sale securities has not been included in
regulatory capital calculations.
Bank regulatory authorities have established a capital measurement tool called
"Tier 1" leverage capital. A 4.00% ratio of Tier 1 capital to assets now
constitutes the minimum capital standard for most banking organizations and a
5.00% Tier 1 leverage capital ratio is required for a "well-capitalized"
classification. At December 31, 1997, the Company's Tier 1 leverage capital
ratio was approximately 6.01%. In addition, regulatory authorities have also
implemented risk-based capital guidelines requiring a minimum ratio of Tier 1
capital to risk-weighted assets of 4.00% (6.00% for "well-capitalized") and a
minimum ratio of total capital to risk-weighted assets of 8.00% (10.00% for
"well-capitalized"). At December 31, 1997, the Company's Tier 1 and total
risk-based capital ratios were approximately 12.15% and 13.02%, respectively.
The Company is categorized as "well-capitalized" under the Federal Deposit
Insurance Corporation Improvement Act of 1991 (F.D.I.C.I.A.). The Bank is also
categorized as "well-capitalized" as of December 31, 1997.
IMPACT OF THE YEAR 2000
The year 2000 problem, which is common to most companies, concerns the inability
of information systems, primarily computer software programs, to properly
recognize and process date sensitive information as the year 2000 approaches.
The Company has completed an assessment of the majority of its systems to
identify the systems that could be affected by the year 2000 issue and is in the
process of developing an implementation plan to address this issue. The
Company's various systems generally operate on software which is provided and
maintained by outside vendors, many of whom are larger, well-established
companies who are well-known and established in the banking industry. At this
time, the Company does not anticipate incurring significant costs related to the
year 2000 problem as currently the Company is highly reliant on the efforts of
these outside vendors. The Company does, however, anticipate an increase in the
amount of time management and staff will devote to closely monitor the progress
of these vendors and also testing applications. To the extent that costs are
incurred related to the year 2000 problem, they will be expensed. The Company
currently believes it will be able to modify or replace its affected systems in
time to minimize any detrimental effects on operations. While it is not
possible, at present, to give an accurate estimate of the cost of this work, the
Company does not expect that such costs will be material to the Company's
results of operations in one or more fiscal quarters or years or have a material
adverse impact on the long-term results of operations, liquidity or consolidated
financial position of the
ABINGTON BANCORP, INC. 19 1997 ANNUAL REPORT
<PAGE> 83
MANAGEMENT'S DISCUSSION AND ANALYSIS
Company. However, there can be no assurance that the systems of other companies
on which the Company's systems rely also will be timely converted or that any
such failure to convert by another company would not have an adverse effect on
the Company's systems.
IMPACT OF INFLATION
The Consolidated Financial Statements of the Company and related Financial Data
presented herein have been prepared in accordance with generally accepted
accounting principles which generally require the measurement of financial
condition and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The primary impact of inflation on operations of the Company is
reflected in increased operating costs. Unlike most industrial companies, almost
all the assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the price of goods and services.
PROPOSED ACCOUNTING PRONOUNCEMENTS
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses). Components of
comprehensive income are net income and all other non-owner changes in equity.
This statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separate from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. This statement will be effective for the Company's financial
statements issued for the fiscal year ending December 31, 1998. Reclassification
of financial statements for earlier periods provided for comparative purposes is
required.
SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." This statement establishes standards for
reporting information about segments in annual and interim financial statements.
SFAS No. 131 introduces a new model for segment reporting, called the
"management approach."
The management approach is based on the way the chief operating decision-maker
organizes segments within a company for making operating decisions and assessing
performance. Reportable segments are based on products and services, geography,
legal structure, management structure - any manner in which management
disaggregates a company. This statement is effective and will be adopted for the
Company's financial statements for the fiscal year ending December 31, 1998 and
requires the restatement of previously reported segment information for all
periods presented.
ABINGTON BANCORP, INC. 20 1997 ANNUAL REPORT
<PAGE> 84
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ABINGTON BANCORP, INC.:
- --------------------------------------------------------------------------------
We have audited the accompanying consolidated balance sheets of Abington
Bancorp, Inc. and subsidiary ("the Company") as of December 31, 1997 and 1996,
and the related statements of operations, changes in stockholders' equity and
cash flows for each of the 3 years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
mis-statement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Abington Bancorp, Inc. and
subsidiary as of December 31, 1997 and 1996 and the results of their operations
and their cash flows for each of the 3 years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts
January 16, 1998 (except with respect to the third paragraph of
Note 19, as to which the date is February 24, 1998)
ABINGTON BANCORP, INC. 21 1997 ANNUAL REPORT
<PAGE> 85
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
December 31, 1997 1996
- ---------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks (Note 18) $ 13,312 $ 9,556
Short-term investments 163 152
-------- --------
Total cash and cash equivalents 13,475 9,708
-------- --------
Loans held for sale (Note 6) 1,332 3,176
Securities (Notes 4, 9 and 10):
Held for investment - at cost (market value
of $64,129 in 1997 and $62,456 in 1996) 64,021 63,670
Available for sale - at market value 101,031 91,561
-------- --------
Total securities 165,052 155,231
-------- --------
Loans (Notes 6, 9 and 10) 332,677 298,667
Less: Allowance for possible loan losses (2,280) (1,811)
Unearned income (937) (1,062)
-------- --------
Loans, net 329,460 295,794
-------- --------
Federal Home Loan Bank stock 8,151 7,903
Banking premises and equipment, net (Note 7) 6,294 6,346
Other real estate owned, net (Note 6) 265 500
Intangible assets (Notes 1 and 2) 3,284 3,685
Other assets (Note 11) 4,673 4,615
-------- --------
$531,986 $486,958
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 8) $324,934 $300,445
Short-term borrowings (Note 9) 55,910 63,171
Long-term debt (Note 10) 110,000 84,353
Accrued taxes and expenses (Notes 11 and 14) 3,337 3,447
Other liabilities 1,484 1,996
-------- --------
Total liabilities 495,665 453,412
-------- --------
Commitments and contingencies (Note 12)
Stockholders' equity (Notes 3, 4, 13, 16, 17, and 19):
Serial preferred stock, $.10 par value, 3,000,000
shares authorized; none issued -- --
Common stock, $.10 par value, 12,000,000 shares
authorized; 4,676,000 shares issued in 1997
and 4,660,000 shares issued in 1996 468 467
Additional paid-in capital 21,094 20,923
Retained earnings 19,858 16,221
-------- --------
41,420 37,611
Treasury stock - 1,039,000 and 874,000 shares
in 1997 and 1996, at cost (5,931) (3,703)
Unearned compensation - ESOP (231) (312)
Net unrealized gain/(loss), on available for sale
securities, net of taxes 1,063 (50)
-------- --------
Total stockholders' equity 36,321 33,546
-------- --------
$531,986 $486,958
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
ABINGTON BANCORP, INC. 22 1997 ANNUAL REPORT
<PAGE> 86
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans (Notes 1, 5 and 6) $ 24,838 $ 22,978 $ 20,788
Interest on mortgage-backed investments 9,045 9,245 8,984
Interest on bonds and obligations 1,775 1,512 1,536
Dividend income 589 556 556574
Interest on short-term investments 50 41 67
---------- ---------- ----------
Total interest and dividend income 36,297 34,332 31,949
---------- ---------- ----------
Interest expense:
Interest on deposits (Note 8) 11,057 10,742 9,681
Interest on short-term borrowings (Note 9) 2,557 3,733 4,546
Interest on long-term debt (Note 10) 6,477 5,042 3,995
---------- ---------- ----------
Total interest expense 20,091 19,517 18,222
---------- ---------- ----------
Net interest income 16,206 14,815 13,727
Provision for possible loan losses (Note 6) 630 480 2,233
---------- ---------- ----------
Net interest income, after provision for
possible loan losses 15,576 14,335 11,494
---------- ---------- ----------
Non-interest income (charges):
Loan servicing fees (Note 6) 558 646 713
Other customer service fees 3,276 2,412 1,644
Gain on sales of securities, net 540 495 181
Gain on sales of mortgage loans, net 236 315 453
Write-down of investment in limited partnership - - (110)
Net gain (loss) on sales and write-down of other
real estate owned 109 67 (92)
Other 267 242 119
---------- ---------- ----------
Total non-interest income 4,986 4,177 2,908
---------- ---------- ----------
Non-interest expense:
Salaries and employee benefits (Notes 12, 14 and 17) 6,660 6,075 5,635
Occupancy and equipment expenses (Notes 7 and 12) 2,420 2,374 2,010
Other non-interest expenses (Note 15) 4,425 4,391 4,310
---------- ---------- ----------
Total non-interest expense 13,505 12,840 11,955
---------- ---------- ----------
Income before income taxes 7,057 5,672 2,447
Provision for income taxes (Note 11) 2,679 2,139 1,018
---------- ---------- ----------
Net income $ 4,378 $ 3,533 $ 1,429
========== ========== ==========
Earnings per share (Note 1):
Basic -
Net income per share $ 1.18 $ .94 $ .38
========== ========== ==========
Weighted average common shares 3,716,000 3,774,000 3,758,000
========== ========== ==========
Diluted -
Net income per share $ 1.10 $ .89 $ .37
========== ========== ==========
Weighted average common shares
and share equivalents 3,966,000 3,964,000 3,928,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
ABINGTON BANCORP, INC. 23 1997 ANNUAL REPORT
<PAGE> 87
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized
Gain (Loss)
Additional on Available Unearned
Common Paid-in Retained Treasury for Sale Compensation
(Dollars in thousands) Stock Capital Earnings Stock Securities ESOP Total
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $465 $20,721 $12,765 $(3,703) $(1,407) $(475) $28,366
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - 1,429 - - - 1,429
Issuance of stock 1 90 - - - - 91
Amortization of unearned compensation -
ESOP - - - - - 82 82
Dividends declared ($.20 per share) - - (752) - - - (752)
Changes in unrealized loss on available
for sale securities as a result of
transfers from held for investment,
net of tax effects - - - - (169) - (169)
Change in market value on
available for sale securities, net of taxes - - - - 1,514 - 1,514
---- ------- ------- ------- ------- ----- -------
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 466 20,811 13,442 (3,703) (62) (393) 30,561
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - 3,533 - - - 3,533
Issuance of stock 1 112 - - - - 113
Amortization of unearned compensation -
ESOP - - - - - 81 81
Dividends declared ($.20 per share) - - (754) - - - (754)
Change in market value on
available for sale securities, net of taxes - - - - 12 - 12
---- ------- ------- ------- ------- ----- -------
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 467 20,923 16,221 (3,703) (50) (312) 33,546
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - 4,378 - - - 4,378
Issuance of stock 1 171 - - - - 172
Amortization of unearned compensation-
ESOP - - - - - 81 81
Dividends declared ($.20 per share) - - (741) - - - (741)
Repurchase of common stock - - - (2,228) - - (2,228)
Change in market value on
available for sale securities, net of taxes - - - - 1,113 - 1,113
---- ------- ------- ------- ------- ----- -------
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $468 $21,094 $19,858 $(5,931) $ 1,063 $(231) $36,321
- ------------------------------------------------------------------------------------------------------------------------------------
==== ======= ======= ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
ABINGTON BANCORP, INC. 24 1997 ANNUAL REPORT
<PAGE> 88
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,378 $ 3,533 $ 1,429
Adjustments to reconcile net income to net cash
from operating activities:
Provision for possible loan losses 630 480 2,233
Net (gain) loss on sales and write-down of other real
estate owned and investment in limited partnership (109) (67) 202
Amortization, accretion and depreciation, net 1,798 1,784 1,478
Provision for deferred taxes (166) 131 379
Gain on sales of securities, net (540) (495) (181)
Gain on sales of mortgage loans, net (236) (315) (453)
Loans originated for sale in the secondary market (17,688) (18,344) (40,192)
Proceeds from sales of loans 19,768 18,440 37,762
Other, net (1,101) 1,922 (9,593)
-------- -------- --------
Net cash provided by (used in) operating activities 6,734 7,069 (6,936)
-------- -------- --------
Cash flows from investing activities:
Net cash received in acquisitions - - 14,875
Maturities of held for investment securities - - 1,748
Purchase of held for investment securities (8,968) (3,633) (25,186)
Proceeds from principal payments received
and redemptions of held for investment securities 8,571 8,734 49,469
Proceeds from sales of available for sale securities 32,126 36,665 11,891
Proceeds from principal payments on and maturities
of available for sale securities 19,041 15,517 8,294
Purchase of available for sale securities (58,323) (47,244) (13,965)
Loans originated/purchased, net of amortization and payoffs (34,721) (41,746) (38,699)
Proceeds from sales of loans held in portfolio - 3,038 13,548
Purchases of FHLB stock (248) (504) -
Purchase of banking premises and equipment and
improvements to other real estate owned (1,192) (972) (1,914)
Proceeds from sales of other real estate owned 769 564 1,000
Investments and advances made to low income housing
limited partnerships - (40) -
-------- -------- --------
Net cash used in investing activities (42,945) (29,621) (18,939)
-------- -------- --------
Cash flows from financing activities:
Net increase in deposits 24,489 20,375 16,908
Net increase (decrease) in borrowings with
maturities of 3 months or less 19,739 11,363 (6,244)
Proceeds from issuance of short-term borrowings
with maturities in excess of 3 months 20,000 37,000 29,500
Principal payments on short-term borrowings with
maturities in excess of 3 months (47,000) (46,500) (20,000)
Proceeds from issuance of long-term debt 49,500 37,000 36,000
Principal payments on long-term debt (23,853) (36,948) (27,802)
Payment of cash dividends (741) (754) (753)
Purchase of treasury stock (2,228) - -
Proceeds from the exercise of stock options 72 113 91
-------- -------- --------
Net cash provided by financing activities 39,978 21,649 27,700
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 3,767 (903) 1,825
Cash and cash equivalents at beginning of year 9,708 10,611 8,786
-------- -------- --------
Cash and cash equivalents at end of year $ 13,475 $ 9,708 $ 10,611
======== ======== ========
</TABLE>
ABINGTON BANCORP, INC. 25 1997 ANNUAL REPORT
<PAGE> 89
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Supplemental cash flow information:
Interest paid on deposits $11,063 $10,741 $ 9,676
Interest paid on borrowed funds 8,935 8,891 8,219
Income taxes paid 3,717 379 1,098
Transfers of loans to other real estate owned 425 62 848
Transfers of securities to available for sale
from held for investment - - 66,692
Transfer of securities from available for sale to
held for investment - - 8,485
Acquisitions: (Note 2)
Liabilities assumed $ - $ - $16,534
Less: Assets purchased - - 472
Premium paid - - 1,187
------- ------- -------
Net cash received $ - $ - $14,875
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
ABINGTON BANCORP, INC. 26 1997 ANNUAL REPORT
<PAGE> 90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION AND CONSOLIDATION
The consolidated financial statements include the accounts of Abington Bancorp,
Inc. (the "Company") and its wholly-owned subsidiary, Abington Savings Bank (the
"Bank"). The Bank also includes its wholly-owned subsidiaries, Holt Park Place
Development Corporation and Norroway Pond Development Corporation, each
typically owning properties being marketed for sale, ABBK Corporation, which
invested in real estate limited partnerships and was dissolved in January 1997,
and Abington Securities Corporation, which invests primarily in obligations of
the United States Government and its agencies and equity securities.
Abington Bancorp, Inc., was reestablished as the Bank's holding company on
January 31, 1997. Previously, the Company's predecessor, also known as Abington
Bancorp, Inc., had served as the Bank's holding company from February 1988 until
its dissolution in December 1992. The Company's primary business is serving as
the holding company of the Bank.
On January 31, 1997, in connection with the holding company formation, each
share of the Bank's common stock previously outstanding was converted
automatically into 1 share of common stock of the Company, and the Bank became a
wholly-owned subsidiary of the Company. This reorganization had no impact on the
consolidated financial statements. All significant intercompany balances and
transactions have been eliminated in consolidation.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of income and expenses during the reporting periods.
Operating results in the future could vary from the amounts derived from
management's estimates and assumptions.
RECLASSIFICATIONS
Certain amounts in the 1996 and 1995 consolidated financial statements have been
reclassified to conform to the 1997 presentation.
CASH EQUIVALENTS
Cash equivalents include amounts due from banks, short-term investments with
original maturities of less than 3 months and federal funds sold on a daily
basis.
SECURITIES
Investment securities are classified in 1 of 3 categories and are accounted for
as follows:
* Debt securities that the Company has the positive intent and ability to
hold to maturity are classified as "held for investment" securities and
reported at amortized cost.
* Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as "trading
securities" and reported at fair value, with unrealized gains and losses
included in earnings.
* Debt and equity securities not classified as either held for investment or
trading are classified as "available for sale" and reported at market value
with unrealized gains and losses excluded from earnings and reported in a
separate component of stockholders' equity, net of applicable income tax
effects.
The Company had no securities classified as trading securities at December 31,
1997 and 1996.
Mortgage-backed investments, held for investment, are stated at amortized cost
reduced by principal payments with discounts and premiums being recognized in
income by the interest method over the expected maturity of the investments.
Gains and losses on the disposition of securities are computed using the
specific identification method. Unrealized losses which are deemed to be other
than temporary declines in value are charged to operations.
LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Company grants mortgage, commercial and consumer loans to customers. A
substantial portion of the loan portfolio consists of mortgage loans in the
southeastern Massachusetts area. The ability of the Company's debtors to honor
their contracts is generally dependent upon the stability of real estate and the
general economic conditions in the Company's market area.
Of the total loan portfolio at December 31, 1997, approximately 25% represent
owner-occupied first mortgages located throughout the United States. Of this
portion of the portfolio, there are no concentrations in a single state
exceeding 5% of the Company's total loans.
Loan origination and commitment fees and certain direct loan origination costs,
as defined, are deferred and amortized as a yield adjustment over the
contractual life of the related loans under the interest method. Premiums and
discounts on purchased residential loans are also amortized as a yield
adjustment by the interest method over the estimated duration of the
investments. Unearned discounts are amortized under the interest method over the
term of the related loans. All other interest on loans is recognized on a simple
interest basis.
Interest on loans is generally not accrued when the principal or interest on the
loan becomes delinquent in excess of 90 days, and/or in the judgment of
management the collectibility of the principal or interest becomes doubtful.
When a loan is placed on a non-accrual status, all interest previously accrued
but not collected is reversed against interest income in the current period.
Interest income is subsequently recognized only to the extent cash payments are
received.
The allowance for possible loan losses is based on management's evaluation of
the level of the allowance required in relation to the estimated loss exposure
in the loan portfolio. Procedures employed in considering the allowance
requirements include, among other factors, management's ongoing review of
individual loans, an evaluation of results of examinations by regulatory
authorities and analyses of historical trends in charge-offs and delinquencies.
Loans are charged-off to the allowance for loan losses when, in the opinion of
management, such loans are deemed to be uncollectible. The allowance is an
estimate, and ultimate losses may vary from current estimates. As adjustments
become necessary, they are reported in earnings during the periods in which they
become known.
The allowance for possible loan losses as of December 31, 1997 is based on
management's estimate of the amount required to absorb future losses in the loan
portfolio based on known current circumstances and real estate market
conditions. However, some degree of uncertainty exists as to future trends in
the local economy and real estate market which, if there is significant
deterioration, could
ABINGTON BANCORP, INC. 27 1997 ANNUAL REPORT
<PAGE> 91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
result in the Company experiencing increases in non-performing loans, additional
provisions for loan losses and increased lost interest income on non-accrual
loans.
Funds for lending are partially derived from selling participating and whole
interests in mortgage loans. Loans designated as held for sale are accounted for
at the lower of their aggregate cost or market value. Gains or losses on sales
of loans are recognized at the time of the sale and are adjusted when the
average interest rate on the loans sold, after normal servicing fees, differs
from the agreed yield to the buyer.
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 114, ("SFAS No. 114"), "Accounting by Creditors for
Impairment of a Loan," which the Company adopted on January 1, 1995. SFAS No.
114 requires, among other things, that creditors measure impaired loans at the
present value of expected future cash flows, discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of the underlying collateral if the loan is collateral
dependent.
The Company has determined, after a review of its policies and procedures
related to credit quality and an analysis of the loans outstanding at January 1
and December 31, 1995, 1996 and 1997, that loans recognized by the Company as
non-accrual are equivalent to "impaired loans" as defined in SFAS No. 114. The
Company has also determined that the reserve for possible loan losses at January
1, 1995 did not require an additional loan loss provision as a result of the
adoption of this standard.
MORTGAGE SERVICING RIGHTS
On January 1, 1996, the Company adopted SFAS No. 122, "Accounting for Mortgage
Servicing Rights." This statement, which was superseded in June 1996 upon the
issuance of SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities," requires the recognition of a
separate asset for the rights to service mortgage loans for others regardless of
how those servicing rights were created. SFAS No. 125 impacts the Company to the
extent fixed rate loan originations having terms in excess of 15 years are sold
in the secondary mortgage market with servicing of the related loan retained by
the Company. In such cases, the Company is required to allocate a portion of the
cost of the loan to the mortgage servicing rights based on the relative fair
values of such servicing rights and the loan. The value of such servicing rights
is to be periodically assessed for impairment based on the fair value of those
rights. During 1996, the Company capitalized approximately $103,000 of mortgage
servicing rights which resulted in a corresponding increase in gains on sales of
mortgages. No mortgage servicing rights were capitalized in 1997 as
substantially all loan sales on the secondary market were made on a servicing
released basis. All previously capitalized mortgage servicing rights were
written-off in 1997 as the result of higher than anticipated prepayment
experience on the related loan portfolios.
OTHER REAL ESTATE OWNED
Real estate acquired by foreclosure and acquired by deed in lieu of foreclosure
are classified as other real estate owned and initially recorded at the lower of
cost or fair value less estimated selling costs. In the event of subsequent
declines in value, other real estate owned is adjusted to fair market value
through a charge to non-interest income.
The fair value for these assets is based on periodic analysis of the real estate
by management. Factors considered include, but are not limited to, general
economic and market conditions, geographic location, the composition of the real
estate holdings and property conditions.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF
On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The statement also requires that certain long-lived
assets and identifiable intangibles to be disposed of be reported at the lower
of the carrying amount or fair value less cost to sell. The implementation of
this statement did not have any impact on the results of operations or financial
condition of the Company.
BANKING PREMISES AND EQUIPMENT
Land is carried at cost. Buildings, leasehold improvements and equipment are
carried at cost, less accumulated depreciation computed on the straight-line
method over the estimated useful lives of the assets, or the terms of the
leases, if shorter. The cost of maintenance and repairs are expensed as
incurred; major expenditures for betterments are capitalized and depreciated.
INVESTMENT IN REAL ESTATE LIMITED PARTNERSHIP
The Company has an investment in a real estate limited partnership which is
accounted for on the cost recovery method and is included in other assets. The
carrying value of this investment is periodically evaluated by management as to
its expected future recoverability and write-downs are recorded once impairment
in value is identified and quantified.
INTANGIBLE ASSETS
Core deposit intangibles are being amortized on a straight-line basis over their
estimated lives of 7 to 10 years. Goodwill is being amortized on a straight-line
basis over 10 to 15 years. Organization costs are amortized on a straight-line
basis over 5 years. The carrying value of these assets is periodically evaluated
by management as to their expected future recoverability and write-downs are
recorded once an impairment in value is identified and quantified.
INCOME TAXES
Tax assets and liabilities are reflected at currently enacted income tax rates.
As changes in tax laws and rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
EARNINGS PER SHARE
In 1997, the Company adopted the provisions of SFAS No. 128, "Earnings Per
Share." This statement was issued in March 1997 and establishes standards for
computing and presenting earnings per share (EPS) and applies to entities with
publicly held common stock. This statement replaces the presentation of primary
EPS with a presentation of basic EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerators and
denominators of the basic and diluted EPS computations. This statement also
requires a restatement of all prior-period EPS data presented. The only
reconciling difference between the Company's computation of basic and diluted
earnings per share is the diluitive effect of stock options issued and
unexercised (see Note 16 for stock options). At December 31, 1997, all options
and warrants which were unexercised were excercisable and included in diluted
EPS calculations.
Additionally, on October 30, 1997, the Board of Directors of Abington Bancorp,
Inc. approved a split of its common stock on a 2-for-1 basis in the form of a
stock dividend payable on December 12, 1997, to share-
ABINGTON BANCORP, INC. 28 1997 ANNUAL REPORT
<PAGE> 92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
holders of record as of November 14, 1997. All share and per share data
presented in these consolidated financial statements has been retroactively
restated for this event.
The effect of this new pronouncement on previously reported earnings per share
is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
December 31, 1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C>
EPS as reported, affected for
stock split $.89 $.37 $.70
Effect of SFAS No. 128 .05 .01 .03
---- ---- ----
Basic EPS as restated $.94 $.38 $.73
==== ==== ====
EPS as reported, affected for
stock split $.89 $.37 $.70
Effect of SFAS No. 128 - - -
---- ---- ----
Diluted EPS as restated $.89 $.37 $.70
==== ==== ====
</TABLE>
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses). Components of
comprehensive income are net income and all other non-owner changes in equity.
This statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separate from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. This statement will be effective for the Company's financial
statements issued for the fiscal year ending December 31, 1998. Reclassification
of financial statements for earlier periods provided for comparative purposes is
required.
SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." This statement establishes standards for
reporting information about segments in annual and interim financial statements.
SFAS No. 131 introduces a new model for segment reporting, called the
"management approach."
The management approach is based on the way the chief operating decision-maker
organizes segments within a company for making operating decisions and assessing
performance. Reportable segments are based on products and services, geography,
legal structure, management structure - any manner in which management
disaggregates a company. This statement is effective and will be adopted for the
Company's financial statements for the fiscal year ending December 31, 1998 and
requires the restatement of previously reported segment information for all
periods presented.
STOCK BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25), and related interpretations in accounting
for its stock-based compensation plans (Note 16). Accordingly, no accounting
recognition is given to options granted at fair market value until they are
exercised. Upon exercise, net proceeds, including tax benefits realized, if any,
are credited to equity.
Effective in 1995, the Company adopted the disclosure option of SFAS No. 123,
"Accounting for Stock Based Compensation." SFAS No. 123 defines a fair value
based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
their employee stock compensation plans. This statement requires that entities
which do not choose to account for stock-based compensation as prescribed by
this statement shall continue to account for these plans under APB 25 and
disclose the pro forma effects on earnings and earnings per share as if SFAS No.
123 had been adopted.
2. ACQUISITIONS
- --------------------------------------------------------------------------------
On June 26, 1995, the Company acquired certain assets and assumed certain
liabilities of a branch of the First National Bank of Boston located in
Holbrook, Massachusetts ("Holbrook"). In connection with the assumption of
approximately $16,319,000 of deposit liabilities, the Company received
$14,875,000 in cash and $472,000 in property and other assets. The resultant
core deposit premium and other intangible assets of $1,187,000 are being
amortized over their estimated life of 10 years.
ABINGTON BANCORP, INC. 29 1997 ANNUAL REPORT
<PAGE> 93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. REGULATORY MATTERS
- --------------------------------------------------------------------------------
The Company and the Bank are subject to various regulatory requirements
administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory -
and possibly additional discretionary - actions by regulators that, if
undertaken, could have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and Bank must meet specific capital
guidelines that involve quantitative measures of the Company's and the Bank's
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company's and the Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk-weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes as of December 31,
1997, that the Company and the Bank met all capital adequacy requirements to
which they are subject.
As of December 31, 1997 and 1996 (Bank only), the Company and the Bank were
well-capitalized under the regulatory framework for prompt corrective action. To
be categorized as well-capitalized, an insured depository institution must
maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Company's or the Bank's
category. The Company's and the Bank's actual capital amounts and ratios are
presented in the following table.
<TABLE>
<CAPTION>
To be Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
- ---------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
As of December 31, 1997:
<S> <C> <C> <C> <C> <C> <C>
Company
Total Capital (to risk-weighted assets ) $34,254 13.02% $21,053 8.00% N/A N/A
Tier 1 capital (to risk-weighted assets) $31,974 12.15% $10,526 4.00% N/A N/A
Tier 1 capital (to average assets) $31,974 6.01% $21,279 4.00% N/A N/A
Bank
Total Capital (to risk-weighted assets ) $32,982 12.54% $21,047 8.00% $26,309 10.00%
Tier 1 capital (to risk-weighted assets) $30,702 11.67% $10,524 4.00% $15,785 6.00%
Tier 1 capital (to average assets) $30,702 5.72% $21,279 4.00% $26,845 5.00%
As of December 31, 1996:
Bank
Total Capital (to risk-weighted assets ) $31,824 13.65% $18,648 8.00% $23,314 10.00%
Tier 1 capital (to risk-weighted assets) $30,013 12.88% $ 9,324 4.00% $13,981 6.00%
Tier 1 capital (to average assets) $30,013 6.14% $19,565 4.00% $24,456 5.00%
</TABLE>
ABINGTON BANCORP, INC. 30 1997 ANNUAL REPORT
<PAGE> 94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. SECURITIES
- --------------------------------------------------------------------------------
The amortized cost and market value of securities classified as held for
investment at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------------
At December 31, 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
Federal Home Loan
Mortgage Corporation $16,502 $ 62 $197 $ 16,367 $19,173 $ 40 $ 549 $18,664
Federal National
Mortgage Association 28,624 358 212 28,770 29,152 115 785 28,482
Government National
Mortgage Association 1,434 4 - 1,438 - - - -
Other 17,461 147 54 17,554 15,345 17 52 15,310
------- ------ ---- -------- ------- ---- ------ -------
Total mortgage-backed securities $64,021 $ 571 $463 $ 64,129 $63,670 $172 $1,386 $62,456
======= ====== ==== ======== ======= ==== ====== =======
</TABLE>
The amortized cost and estimated market value of securities classified as
available for sale at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------------
At December 31, 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Government obligations $ 683 $ - $ - $ 683 $ 713 $ 7 $ - $ 720
Federal agency obligations 30,112 143 48 30,207 17,966 90 278 17,778
Other bonds and obligations 3,095 28 3 3,120 1,116 22 - 1,138
------- ------ ---- -------- ------- ---- ------ -------
Total investment securities 33,890 171 51 34,010 19,795 119 278 19,636
------- ------ ---- -------- ------- ---- ------ -------
Marketable equity securities 4,137 996 106 5,027 4,044 445 78 4,411
Mortgage-backed securities:
Federal Home Loan
Mortgage Corporation 12,906 186 30 13,062 23,058 84 352 22,790
Federal National
Mortgage Association 29,660 586 71 30,175 44,751 338 365 44,724
Government National
Mortgage Association 9,476 - 44 9,432 - - - -
Other 9,235 90 - 9,325 - - - -
------- ------ ---- -------- ------- ---- ------ -------
Total mortgage-backed securities 61,277 862 145 61,994 67,809 422 717 67,514
------- ------ ---- -------- ------- ---- ------ -------
$99,304 $2,029 $302 $101,031 $91,648 $986 $1,073 $91,561
======= ====== ==== ======== ======= ==== ====== =======
</TABLE>
The market value and amortized cost of investments and mortgage-backed
securities, respectively, at December 31, 1997 by contractual maturity follows.
Expected maturities or cash flows from securities will differ from contractual
maturities because the issuer may have the right to call or repay obligations
with or without call or prepayment penalties. Projected payments and prepayments
for mortgage-backed securities have not been considered for purposes of this
presentation.
ABINGTON BANCORP, INC. 31 1997 ANNUAL REPORT
<PAGE> 95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Amortized Cost % to Total Market Value
- ------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Within 1 year $ 35 .1% $ 35
Over 1 year to 5 years 9,059 23.6 9,139
Over 5 years to 10 years 21,112 62.3 21,170
Over 10 years 3,684 14.0 3,666
------- ----- -------
$33,890 100.0% $34,010
======= ===== =======
</TABLE>
MORTGAGE-BACKED SECURITIES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Held for Investment Available for Sale
- -----------------------------------------------------------------------------------
(Dollars in thousands)
Amortized Market Amortized Market
Cost Value Cost Value
---------------------- ------------------------
<S> <C> <C> <C> <C>
Within 1 year $ - $ - $ - $ -
Over 1 year to 5 years 1,434 1,438 3,107 3,077
Over 5 years to 10 years 746 796 380 383
Over 10 years 61,841 61,895 57,790 58,534
------- ------- ------- -------
$64,021 $64,129 $61,277 $61,994
======= ======= ======= =======
</TABLE>
Gross gains on sales of marketable equity securities were $687,000, $407,000 and
$68,000 for 1997, 1996 and 1995, respectively. There were no losses on sales of
equity securities in 1997, 1996 or 1995.
Gross gains on sales of investment securities were $0, $30,000 and $77,000 for
1997, 1996 and 1995, respectively. Gross losses on sales of investment
securities were $54,000, $54,000 and $4,000 for 1997, 1996 and 1995,
respectively.
Proceeds from sales of mortgage-backed investments classified as available for
sale during 1997, 1996 and 1995 were $26,402,000, $17,082,000 and $6,109,000,
respectively. Gross gains of $142,000, $130,000 and $69,000 in 1997, 1996 and
1995, respectively, were realized on those sales. Gross losses of $235,000,
$18,000 and $29,000 were realized in 1997, 1996 and 1995, respectively.
A U.S. agency obligation security with a carrying value of $1,165,000 was
pledged to collateralize treasury, tax and loan obligations.
All agency and mortgage-backed securities also serve as collateral for FHLB
borrowings as part of a blanket collateral agreement as further described in
Note 9.
5. INTEREST RATE SWAP AGREEMENT
- --------------------------------------------------------------------------------
To help manage interest rate sensitivity on the Company's adjustable rate
mortgage loan portfolio, the Company entered into an interest rate swap
agreement in July 1994 for a period of 36 months with an international
investment banking firm. Under this agreement, the Company received a fixed rate
of interest of 5.35% on the notional amount and paid interest based on the 6
month floating LIBOR rate on the notional amount which reset semi-annually
(February and August). The notional amount of this swap was initially
$15,000,000. This amount amortized at a rate consistent with the amortization
and prepayment of a reference pool of residential mortgages as specified in the
agreement. In addition to the fixed rate of interest, the Company also received
$300,000 in cash upon execution of this agreement. This amount was accreted to
income over the life of the agreement at a rate consistent with the
aforementioned reference pool of mortgages. The resulting yield received by the
Company, including the impact of the accretion, was approximately 6.25% in 1997.
This agreement expired on August 15, 1997.
Net interest income (expense) associated with this swap was recognized based on
the accrual method. The net interest income (expense) recognized by the Bank
during 1997, 1996 and 1995 as a result of this agreement was $34,000, $77,000
and $(26,000), respectively.
ABINGTON BANCORP, INC. 32 1997 ANNUAL REPORT
<PAGE> 96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LOANS AND OTHER REAL ESTATE OWNED
- --------------------------------------------------------------------------------
A summary of the loan portfolio follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Mortgage loans:
Residential $249,165 $236,635
Second mortgages and home equity 20,392 17,368
Construction 7,681 5,956
Commercial 39,341 24,718
-------- --------
316,579 284,677
Less: Due to borrowers on incomplete loans (2,166) (2,758)
Net deferred loan fees (813) (986)
-------- --------
Total mortgage loans 313,600 280,933
Commercial loans:
Unsecured lines of credit 245 324
Secured and unsecured 7,399 4,210
-------- --------
7,644 4,534
Net deferred loan fees (124) (76)
-------- --------
Total commercial loans 7,520 4,458
Other loans:
Indirect automobile 1,263 4,355
Personal 1,562 1,625
Education 423 509
Passbook and other secured 8,323 8,416
Home improvement 381 485
-------- --------
Total other loans 11,952 15,390
-------- --------
Total loans 333,072 300,781
Less allowance for possible loan losses (2,280) (1,811)
-------- --------
Loans and loans held for sale, net $330,792 $298,970
======== ========
</TABLE>
Included in residential real estate mortgages at December 31, 1997 and 1996,
respectively, are approximately $1,332,000 and $3,176,000 of loans held for
sale. At December 31, 1997 and 1996, the estimated market values of loans held
for sale was in excess of their carrying value. The Company was servicing
mortgage loans sold under non-recourse agreements amounting to approximately
$208,073,000 and $235,949,000 at December 31, 1997 and 1996, respectively.
During October 1995, the Company's management and Board of Directors evaluated
the feasibility of a sale, at a discount, of a group of approximately $9.2
million of loans. This pool consisted of approximately $5.7 million of loans
which were on non-accrual at September 30, 1995 and certain other loans which,
although performing, were expected to require a higher than average level of
management attention and out-of-pocket costs to maintain performance or to
potentially foreclose upon or workout.
The transaction was reflected in the third quarter results for 1995. These loans
were sold at approximately 64% of par. The loss associated with this sale was
reflected as a charge-off to the allowance for possible loan losses.
In the ordinary course of business, the Company has granted loans to certain of
its officers and directors and their affiliates. All transactions are on
substantially the same terms as those prevailing at the same time for
individuals not affiliated with the Bank and do not involve more than the normal
risk of collectibility. The total amount of such loans which exceeded $60,000 in
aggregate amount to any related party amounted to $1,714,000 at December 31,
1997, and $2,569,000 at December 31, 1996. During the year ended December 31,
1997, total principal additions were $1,000 and total principal reductions were
$856,000.
The following analysis summarizes the Company's non-performing assets at
December 31, 1997 and 1996.
ABINGTON BANCORP, INC. 33 1997 ANNUAL REPORT
<PAGE> 97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Impaired loans or loans accounted for
on a non-accrual basis $622 $1,028
Accruing loans past due 90 days or more
as to principal or interest 91 144
---- ------
Total non-performing loans 713 1,172
Other real estate owned, net 265 500
---- ------
Total non-performing assets $978 $1,672
==== ======
</TABLE>
Impaired loans totaling $293,000 and $314,000, at December 31, 1997 and 1996,
respectively, required an allocation of $45,000 and $97,000, respectively, of
the allowance for possible loan losses. The remaining impaired loans did not
require any allocation of the reserve for possible loan losses. The average
balance of impaired loans was approximately $966,000 and $721,000 in 1997 and
1996, respectively. The total amount of interest income recognized on impaired
loans during 1997 and 1996 was approximately $50,000 and $48,500, respectively,
which approximated the amount of cash received for interest during those
periods. The Company has no commitments to lend additional funds to borrowers
whose loans have been deemed to be impaired. An analysis of the allowance for
possible loan losses follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of year $1,811 $1,433
Provision 630 480
Recoveries 205 193
------ ------
2,646 2,106
Loans charged-off (366) (295)
------ ------
Balance at end of year $2,280 $1,811
====== ======
</TABLE>
An analysis of the general allowance for possible losses on other real estate
owned follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of year $ 160 $ 104
Provision - 75
Charge-offs (100) (19)
----- -----
$ 60 $ 160
===== =====
</TABLE>
7. BANKING PREMISES AND EQUIPMENT
- --------------------------------------------------------------------------------
A summary of the cost and accumulated depreciation of banking premises and
equipment and their estimated useful lives is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
December 31, 1997 1996 Estimated Useful Lives
- ------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Banking premises:
Land $ 671 $ 671
Buildings and improvements 5,000 4,911 10-25 years
Leasehold improvements 637 514 10-15 years
Equipment 8,219 7,240 3-10 years
------ -------
14,527 13,336
Less accumulated depreciation (8,233) (6,990)
------ -------
$6,294 $ 6,346
====== =======
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
amounted to $1,243,000, $1,154,000 and $941,000, respectively.
ABINGTON BANCORP, INC. 34 1997 ANNUAL REPORT
<PAGE> 98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. DEPOSITS
- --------------------------------------------------------------------------------
A summary of deposit balances, by type, is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Non-interest NOW $ 33,925 $ 27,912
NOW 41,278 35,812
Other savings 81,923 79,470
Money market deposits 15,477 16,527
-------- --------
Total non-certificate accounts 172,603 159,721
Term certificate accounts 125,661 117,419
Certificates of deposit greater than $100 26,670 23,305
-------- --------
Total certificate accounts 152,331 140,724
-------- --------
Total deposits $324,934 $300,445
======== ========
</TABLE>
A summary of certificate accounts by maturity is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
December 31, 1997 1996
- ---------------------------------------------------------------------------------
(Dollars in thousands)
Weighted Weighted
Amount Average Rate Amount Average Rate
----------------------- -----------------------
<S> <C> <C> <C> <C>
Within 1 year $102,681 5.53% $ 89,073 5.49%
Over 1 year to 3 years 43,846 6.26 33,757 6.13
Over 3 years to 5 years 5,804 5.67 17,894 6.65
-------- --------
$152,331 5.74% $140,724 5.79%
======== ========
</TABLE>
9. SHORT-TERM BORROWINGS
- --------------------------------------------------------------------------------
Short-term borrowings consist primarily of Federal Home Loan Bank advances with
original maturities of 1 year or less. All borrowings from the Federal Home Loan
Bank of Boston are secured under a blanket lien by certain qualified collateral
defined principally as 85% to 90% of the carrying value of U.S. Government and
agency obligations, including mortgage-backed securities, and 75% of the
carrying value of residential mortgage loans. Information relating to activity
and rates paid under these borrowing agreements is presented below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Maximum amount of borrowings outstanding during the year $94,506 $78,300 $108,700
Average month-end borrowings outstanding during the year $45,833 $66,790 $ 73,719
Average interest rate during the year 5.58% 5.59% 6.17%
Unused line of credit at Federal Home Loan Bank of Boston $ 4,780 $ 8,767 $ 6,689
Amount outstanding at end of year $55,910 $63,171 $ 61,308
Weighted average interest rate at end of year 5.68% 5.68% 5.75%
</TABLE>
ABINGTON BANCORP, INC. 35 1997 ANNUAL REPORT
<PAGE> 99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. LONG-TERM DEBT
- --------------------------------------------------------------------------------
A summary of long-term debt, consisting of FHLB advances with an original
maturity of greater than 1 year is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Maturity Date Interest rate December 31, 1997 December 31, 1996
- -----------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
March 25, 1997 5.25% $ - $ 4,000
May 5, 1997** 6.12 - 1,799
July 15, 1997** 6.32 - 1,554
August 18, 1997 6.94 - 4,000
October 27, 1997 5.83 - 5,000
November 24, 1997* 5.82 - 16,000
December 19, 1997 5.81 - 7,500
February 4, 1998 5.30 4,500 4,500
July 20, 1998 5.78 5,000 -
September 30, 1998 6.22 5,000 5,000
November 9, 1998 5.80 15,000 15,000
November 13, 1998 5.90 5,000 5,000
May 4, 1999*** 5.99 5,000 5,000
May 13, 1999 6.38 4,000 -
September 16, 1999 6.66 5,000 5,000
October 20, 1999 6.06 5,000 -
November 1, 1999 6.23 5,000 5,000
February 24, 2000 5.79 16,000 -
March 6, 2000 6.51 4,000 -
March 20, 2000 6.61 5,000 -
April 11, 2000 6.82 4,000 -
October 20, 2000 6.21 5,000 -
March 6, 2001 6.66 4,000 -
March 19, 2001 6.77 5,000 -
April 11, 2001 6.98 4,000 -
May 14, 2001 6.74 4,000 -
December 9, 2017 5.66 500 -
-------- -------
$110,000 $84,353
======== =======
</TABLE>
* Variable rate advance with quarterly resets; with prepayment option at
reset dates without penalty
** Amortizing advance
*** LIBOR floating advance with a monthly reset
11. INCOME TAXES
- --------------------------------------------------------------------------------
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Current: Federal $2,509 $1,704 $ 595
State 336 304 44
------ ------ ------
2,845 2,008 639
Deferred: Federal (121) 110 264
State (45) 21 115
------ ------ ------
(166) 131 379
------ ------ ------
Total $2,679 $2,139 $1,018
====== ====== ======
</TABLE>
The reason for the differences between the effective tax rates and the statutory
tax rates are summarized as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 2.7 3.8 4.3
Effect of amortization of non-deductible goodwill .6 .7 3.1
Other, net .7 (.8) .2
---- ---- ----
38.0% 37.7% 41.6%
==== ==== ====
</TABLE>
ABINGTON BANCORP, INC. 36 1997 ANNUAL REPORT
<PAGE> 100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of net deferred taxes as recorded as of December 31, 1997 and
1996 are as follows (assets/(liabilities)):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Loan loss reserves $ 827 $ 582
Loan fee income 40 79
Dividends on deposits not yet deducted
for tax purposes 74 114
Pension expense 194 200
Equity in partnership losses (1,391) (1,273)
Core deposit intangible (312) (227)
Other, net 76 (41)
------- -------
(492) (566)
Deferred tax assets applicable to unrealized
(gains) losses on securities (597) 34
------- -------
Net deferred tax assets (liabilities) included
in other assets (other liabilities) $(1,089) $ (532)
======= =======
</TABLE>
In August of 1996, Congress passed the Small Business Job Protection Act of
1996. Included in this bill was the repeal of IRC Section 593, which allowed
thrift institutions special provisions in calculating bad debt deductions for
income tax purposes. Thrift institutions now will be viewed as commercial banks
for income tax purposes. The repeal is effective for tax years beginning after
December 31, 1995.
One effect of this legislative change is to suspend the Bank's bad debt reserve
for income tax purposes as of its base year (October 31, 1988). Any bad debt
reserve in excess of the base year amount is subject to recapture over a 6 year
time period. The suspended (i.e., base year) amount is subject to recapture upon
the occurrence of certain events, such as complete or partial redemption of the
Bank's stock or if the Bank ceases to qualify as a bank for income tax purposes.
At December 31, 1997, the Bank's surplus includes approximately $1,960,000 of
bad debt deductions for which income taxes have not been provided. As the Bank
does not intend to use the reserve for purposes other than to absorb loan
losses, deferred taxes of approximately $820,000 have not been provided on this
amount.
12. COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
In the normal course of business, there are outstanding commitments and
contingencies which are not reflected in the consolidated financial statements.
LITIGATION
On or about April 10, 1996, a civil action entitled Merrill Lynch Mortgage
Capital, Inc. v. Abington Savings Bank, Spires Financial, L.P. and Geoffrey
Lawes, Docket No. MRS-L-1169-96, was filed in the Law Division of the Superior
Court of New Jersey, venued in Morris County. The complaint named the Bank as a
defendant, along with the Bank's alleged financial broker, Spires Financial,
L.P. ("Spires") and an employee of Spires, Geoffrey Lawes ("Lawes").
The complaint alleged, among other things, that (1) Spires and/or Lawes, as
agent for the Bank, entered into a binding agreement with the plaintiff on
February 28, 1996 under which the Bank agreed to purchase from the plaintiff a
pool of conventional adjustable rate mortgage loans having an unpaid principal
balance of approximately $34,000,000 as of March 1, 1996 and (2) the Bank
subsequently refused to close on the alleged contract. Plaintiff originally
sought damages of no less than $530,000 against the Bank on the grounds that the
Bank breached its alleged contract. The Bank settled its portion of the
plaintiff's claim in December 1997 for $100,000.
The Company is a defendant in various other legal claims incident to its
business, none of which is believed by management, based on the advice of legal
counsel, to be material to the consolidated financial statements.
SPECIAL TERMINATION AGREEMENTS
The Company has entered into Special Termination Agreements with five officers
which provide for a lump-sum severance payment within a 3 year period following
a "change in control," as defined in the agreements.
LOAN AND GENERAL COMMITMENTS
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments principally include commitments to extend credit and
advance funds on outstanding lines of credit. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the balance sheet. The contract amounts or unpaid principal
balance of those instruments reflect the extent of involvement the Company has
in these particular classes of financial instruments. The Company's exposure to
credit loss is represented by the contractual amount or unpaid principal balance
of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for financial instruments
reflected on the balance sheet. Financial instruments which represent credit
risk at December 31, 1997 and 1996 are as follows:
ABINGTON BANCORP, INC. 37 1997 ANNUAL REPORT
<PAGE> 101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
At December 31, 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Contract amount of:
Commitments to grant loans $ 8,359 $ 6,355
Commitments to sell loans 1,415 2,516
Unadvanced funds on home equity lines of credit 11,230 10,679
Unadvanced funds on other lines of credit 2,242 1,949
Commitments to advance funds under
construction loan agreements 2,166 2,758
</TABLE>
Commitments to grant loans are agreements to lend to a customer as long as there
is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. The commitments for lines of credit may expire without
being drawn upon. Therefore, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The Company has an investment in a limited
partnership with a book value of $57,000 at December 31, 1997. This partnership
was established for the rehabilitation and management of low income housing
projects. Credit risk, which is limited to funds previously advanced and tax
credits subject to recapture, arises from the possible financial insolvency of
the project and the ultimate ability of the partnership to survive as a going
concern. In this case, the Company's investment in these projects would not be
fully recoverable in the normal course of business, and previously earned tax
credits may be recaptured.
LEASE COMMITMENTS
Pursuant to the terms of non-cancelable lease agreements in effect, future
minimum rent commitments for the next 5 years and thereafter are as follows at
December 31, 1997:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Amount
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C>
1998 $ 277
1999 251
2000 212
2001 157
2002 161
2003 and thereafter 1,365
------
$2,423
======
</TABLE>
Certain leases also contain renewal options (up to 10 years) and real estate tax
escalation clauses. Rent expense for the years ended December 31, 1997, 1996 and
1995 amounted to approximately $238,000, $235,000 and $156,000, respectively.
13. STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
At the time of the conversion from mutual to stock form in 1986, the Bank
established a liquidation account in the amount of $7,478,000. In accordance
with Massachusetts statutes, the liquidation account will be maintained for the
benefit of eligible account holders who continue to maintain their accounts in
the Bank after the conversion. The liquidation account will be reduced annually
to the extent that eligible account holders have reduced their qualifying
deposit. Subsequent increases will not restore an eligible account holder's
interest in the liquidation account. In the event of a complete liquidation of
the Bank, each eligible account holder will be entitled to receive a
distribution in an amount equal to their current adjusted liquidation account
balances to the extent that funds are available.
Federal and state banking regulations place certain restrictions on dividends
paid and loans or advances made by the Company. The total amount of dividends
which may be paid at any date is generally limited to the undivided profits of
the Company. Undivided profits at the Company totaled $19,858,000 at December
31, 1997. Additionally, future dividends, if any, will depend on the earnings of
the Company and its subsidiary, its need for funds, its financial condition, and
other factors, including applicable government regulations. (See Note 3.)
14. EMPLOYEE BENEFIT PLAN
- --------------------------------------------------------------------------------
The Bank provides basic pension benefits for eligible employees through the
Savings Bank's Employees Retirement Associations ("SBERA") Pension Plan. Each
employee reaching the age of 21 and having completed at least 1,000 hours of
service in a consecutive 12 month period beginning with such employee's date of
employment automatically becomes a participant in the pension plan. All
participants are fully vested after being credited with 3 years of service or at
age 62, if earlier. Net periodic pension expense for the plan years ended
October 31, 1997, 1996 and 1995, consisted of the following:
ABINGTON BANCORP, INC. 38 1997 ANNUAL REPORT
<PAGE> 102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years Ended October 31, 1997 1996 1995
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Service cost benefits earned during the year $ 247 $ 247 $ 184
Interest cost on projected benefits 189 180 163
Actual return on plan assets (409) (347) (326)
Net amortization and deferral 163 151 176
----- ----- -----
$ 190 $ 231 $ 197
===== ===== =====
</TABLE>
According to SBERA's actuary, a reconciliation of the funded status of the plan
at October 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
At October 31, 1997 1996
- ----------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Plan assets at fair value, primarily bonds, common stock,
and short-term money market investments $ 3,215 $ 2,709
Projected benefit obligation (3,171) (2,527)
------- -------
(Excess) deficit of projected benefit obligation over plan assets 44 182
Unrecognized net surplus at adoption (86) (93)
Unrecognized net gain (398) (563)
------- -------
Accrued pension liability included on balance sheet $ (440) $ (474)
======= =======
</TABLE>
The accumulated benefit obligation (substantially all vested) at October 31,
1997 and 1996 amounted to $1,896,000 and $1,805,000, respectively, which is less
than the plan assets at fair value.
For the plan years ended October 31, 1997, 1996 and 1995, actuarial assumptions
include an assumed discount rate on benefit obligations of 7.25%, 7.50% and
7.00%, respectively, and an expected long-term rate of return on plan assets of
8.00%. An annual salary increase of 6% was utilized for all years.
The Bank has adopted a management incentive plan (the "Plan") whereby all
officers and supervisors are eligible to receive a bonus, proportionate to their
respective salary, if the Bank meets or exceeds certain base standards of
profitability and net worth levels for its fiscal year. The structure of the
Plan is reviewed on an annual basis by the Board of Directors. The incentive
bonus expense in 1997, 1996 and 1995 was approximately $310,000, $175,000 and
$150,000, respectively.
15. OTHER NON-INTEREST EXPENSE
- --------------------------------------------------------------------------------
Other non-interest expense consisted of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Professional services $1,144 $1,252 $ 865
Item processing and statement rendering 368 371 259
Advertising 746 647 598
Deposit insurance 67 16 324
Real estate in foreclosure and other real estate owned 86 169 491
Amortization of intangible assets 387 423 355
Other 1,627 1,513 1,418
------ ------ ------
$4,425 $4,391 $4,310
====== ====== ======
</TABLE>
Professional services include amounts paid for legal services, audits and
regulatory examinations.
16. STOCK OPTION PLAN
- --------------------------------------------------------------------------------
The Bank adopted a stock option plan, the 1986 Incentive and Nonqualified Stock
Option Plan (the "1986 Stock Option Plan"), in connection with its conversion
from mutual to stock form in 1986. On the effective date of the Holding Company
Plan, the 1986 Stock Option Plan became the Stock Option Plan of the Company. By
its terms, the 1986 Stock Option Plan has expired, and new options may no longer
be granted. The Company has adopted the Abington Bancorp, Inc. 1997 Incentive
and Nonqualified Stock Option Plan ("the 1997 Stock Option Plan") to replace the
1986 Stock Option Plan.
The 1997 Stock Option Plan authorizes the grant of (i) options to purchase
common stock intended to qualify as incentive stock options
ABINGTON BANCORP, INC. 39 1997 ANNUAL REPORT
<PAGE> 103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
("Incentive Options") as defined in Section 422 of the Code, and (ii) options
that do not so qualify ("Nonqualified Options"). Up to 300,000 shares of common
stock (subject to adjustment upon certain changes in the capitalization of the
Company) may be issued pursuant to awards granted under the 1997 Stock Option
Plan. The 1997 Stock Option Plan is administered by the Company's Compensation
Committee (the "Compensation Committee"). The Compensation Committee recommends
to the full Board of Directors the individuals to whom awards are granted and
determines the terms of each award, subject to the provisions of the 1997 Stock
Option Plan. Incentive Options may be granted under the 1997 Stock Option Plan
only to officers and other employees of the Company or its subsidiary.
Nonqualified Options may be granted under the 1997 Stock Option Plan to officers
or other employees of the Company or its subsidiaries, and to members of the
Board of Directors and consultants or other persons who render services to the
Company.
Each option shall expire on the date specified in the option agreement, which
date shall not, in the case of an Incentive Option, extend for more than 10
years from the date of grant (5 years in the case of an optionee who owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any subsidiary ("greater-than-ten-percent-
stockholder")). The exercise price of each option shall be determined by the
Compensation Committee at the time the option is granted, provided, however,
that the option price of any Incentive Option granted under the 1997 Stock
Option Plan must be at least equal to the fair market value of the common stock
on the date of grant (110% of fair market value in the case of a
greater-than-ten-percent-stockholder). The aggregate fair market value
(determined at the time of grant) of shares issuable pursuant to Incentive
Options which first become exercisable by an employee or officer in any calendar
year may not exceed one hundred thousand dollars ($100,000). Options are
non-transferable except by will or by the laws of descent or distribution and
are exercisable, during the optionee's lifetime, only by the optionee.
Options generally may not be exercised (i) after termination of the optionee's
employment with the Company or any of its subsidiaries, or directorship with the
Company, for cause or by reason of such optionee's voluntary resignation, (ii)
30 days after termination of the optionee's employment with the Company or its
subsidiary, or directorship with the Company, without cause or by reason of
retirement in accordance with the Company's (or the applicable subsidiary's)
retirement policies, (iii) 90 days after termination of the optionee's
employment with the Company or its subsidiary, or directorship with the Company,
by reason of disability, and (iv) 180 days after termination of the optionee's
employment with the Company, its subsidiary, or directorship with the Company,
by reason of death. In all cases, however, the Board has the discretion to
extend the exercise date. Payment of the exercise price of the shares subject to
the option may be made (i) in cash in an amount, or by check, bank draft or
postal or express money order payable in an amount, equal to the aggregate
exercise price for such shares, (ii) with the consent of the Compensation
Committee, in the form of shares of common stock having a fair market value
equal to the exercise price of such shares, (iii) with the consent of the
Compensation Committee, by reducing the number of option shares otherwise
issuable to the optionee upon exercise of the option by a number of shares
having a fair market value equal to the aggregate exercise price of such shares,
(iv) with the consent of the Compensation Committee, by delivering such other
consideration that is acceptable to the Compensation Committee and that has a
fair market value, as determined by the Compensation Committee, equal to the
aggregate exercise price of such shares, including any broker-directed cashless
exercise/resale procedure adopted by the Compensation Committee, or (v) with the
consent of the Compensation Committee, any combination of the foregoing.
At the discretion of the Company, options granted under the 1997 Stock Option
Plan may include a so-called "reload" feature pursuant to which an optionee
exercising an option by the delivery of a number of shares of common stock would
automatically be granted an additional option (with an exercise price equal to
the fair market value of the common stock on the date the additional option is
granted and with the same expiration date as the original option being
exercised, and with such other terms as the Compensation Committee may provide)
to purchase that number of shares of common stock equal to the number delivered
to exercise the original option.
In the event of a change of control, as defined in the 1997 Stock Option Plan,
(i) the time for exercise of all unexercised and unexpired awards will be
automatically accelerated, effective as of the effective time of the change of
control (or such earlier date as may be specified by the Board) and (ii) after
the effective time of the change of control, all unexercised awards will remain
outstanding and will be exercisable in full for shares of common stock or, if
applicable, for shares of such securities, cash or property as the holders of
shares of common stock received in connection with the change of control.
The per share exercise prices of the options granted by the 1986 and 1997 Option
Plan range from $1.50 to $15.50 and equaled the fair market value of the shares
on the date the options were granted. Stock Option activity for the years ended
December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Number of Weighted Avg. Number of Weighted Avg. Number of Weighted Avg.
Options Exercise Price Options Exercise Price Options Exercise Price
-------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 398,824 $ 4.40 367,824 $3.92 318,924 $3.40
Granted 46,500 15.50 50,500 8.50 70,500 6.81
Exercised (15,300) 4.75 (19,000) 5.93 (17,600) 5.17
Canceled - - (500) 8.03 (4,000) 8.03
------- ------ ------- ----- ------- -----
Outstanding at end of year 430,024 $ 5.59 398,824 $4.40 367,824 $3.92
======= ====== ======= ===== ======= =====
Exercisable at end of year 430,024 $ 5.59 358,324 $4.12 327,324 $3.56
======= ====== ======= ===== ======= =====
Option price per share $1.50-$15.50 $1.50-$8.50 $1.50-$8.03
Weighted average fair value of
options granted during the year $5.09 $3.35 $3.00
</TABLE>
ABINGTON BANCORP, INC. 40 1997 ANNUAL REPORT
<PAGE> 104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In conjunction with the Company's aforementioned Stock Option Plans, the Company
adopted a Long Term Performance Incentive Plan to encourage executive management
and members of the Board of Directors to build long-term shareholder value. The
plan was a 3 year program which provided a mechanism for granting options under
the Company's Stock Option Plan. Options to purchase approximately 40,500 to
46,500 shares of common stock for each of the 1994, 1995 and 1996 fiscal years
were granted to members of the Board of Directors and certain principal
officers. All options granted under this plan are included in the preceding
table. The options are granted based on achievement of strategic goals such as
acquisitions and asset purchases. The exercise price would be at least equaled
to the fair market value of the common stock on the date of grant. The options
become exercisable upon a change of control of the Company or after the average
market price of the common stock exceeds 120-140% of the exercise price for
periods of 5 to 180 days depending on the qualifications set for each issuance.
As of December 31, 1997, all previously issued options under this plan were
exercisable.
All options granted become fully vested no later than at the end of the ninth
year after issuance. The maximum amount of options which can become exercisable
in any 1 year is limited to $100,000 based on grant prices except in the event
of a change of control, in which case all options become exercisable.
As discussed in Note 1, the Bank applies APB 25 in accounting for its
stock-based compensation plans under which no compensation cost has been
recognized. Had compensation cost for awards in 1997 and 1996 under the Bank's
stock-based compensation plans been determined based on the fair value at the
grant dates consistent with the method set forth under SFAS No. 123, the effect
on the Bank's net income and earnings per share would have been as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
(Dollars in thousands, except in share amounts)
<S> <C> <C> <C>
Net income:
As reported $4,378 $3,533 $1,429
Pro forma 4,236 3,428 1,309
Earnings per share:
As reported -
Basic 1.18 .94 .38
Diluted 1.10 .89 .37
Pro forma -
Basic 1.14 .91 .35
Diluted 1.07 .86 .33
</TABLE>
The initial impact of applying SFAS No. 123 on pro forma net income may not be
indicative of future amounts when the method prescribed by SFAS No. 123 will
apply to all outstanding awards because compensation expense for options granted
prior to January 1, 1995 is not reflected in the pro forma amounts above.
The fair value of each option grant is estimated on the grant date using the
Black-Scholes option-pricing model using the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------
<S> <C> <C> <C>
Expected volatility 21.10% 34.05% 34.05%
Risk-free interest rate 6.17% 5.71% 7.57%
Term of options 7.0 yrs. 9.2 yrs. 9.4yrs.
Expected dividend yield 1.40% 2.35% 2.93%
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
17. EMPLOYEES' STOCK OWNERSHIP PLAN
- --------------------------------------------------------------------------------
The Company has established an Employees' Stock Ownership Plan ("ESOP") which is
being funded by the Company's contributions made in cash (which generally will
be invested in common stock) or common stock. Benefits may be paid in shares of
common stock or in cash, subject to the employees' right to demand shares.
In November 1993, the Company loaned the ESOP $570,000 to acquire additional
shares for participants on the open market. The loan is to be repaid over 7
years with principal and interest (at a rate equal to 85% of the prevailing
prime rate) payable quarterly. The loan is secured by the unallocated shares
acquired by the ESOP.
The Company's ESOP expense for the years ended December 31, 1997, 1996 and 1995
amounted to $181,000, $81,000 and $82,000, respectively.
In the event that the stock price of the Company fluctuates materially at the
point that shares vest with participants from the cost of shares acquired by the
ESOP (at prices which range from $5.63 - $6.13 per share) the Company's
statement of operations could be adversely (if increasing stock price) or
favorably (decreasing stock price) affected. However, in all instances there
will be no negative impact on the Company's capital. During 1997, the impact of
such price variations increased the Company's ESOP expense by $100,000 in
addition to normal amortization expense associated with the participants' earn
out of the shares allocated. There was no material impact related to changes in
the market price in 1996 and 1995.
ABINGTON BANCORP, INC. 41 1997 ANNUAL REPORT
<PAGE> 105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. RESTRICTION ON CASH AND DUE FROM BANKS
- --------------------------------------------------------------------------------
At December 31, 1997 and 1996, cash and due from banks included $3,618,000 and
$2,203,000, respectively, to satisfy the reserve requirements of the Federal
Reserve Bank.
19. STOCK REPURCHASE PROGRAM
- --------------------------------------------------------------------------------
On March 27, 1997, the Company announced that its Board of Directors had
authorized the Company to repurchase up to 10% (375,000 shares) of its currently
outstanding common stock from time to time at prevailing market prices. The
Board delegated to the discretion of the Company's senior management the
authority to determine the timing of the repurchase program's commencement,
subsequent purchases and the prices at which the repurchases will be made.
As of December 31, 1997, the Company had repurchased 165,000 shares of its
common stock under this plan at a total cost of approximately $2,228,000. All of
the repurchases were subsequent to March 31, 1997.
On February 24, 1998 the Company's Board of Directors authorized the Company to
repurchase up to 347,000 shares of its then outstanding common stock
(representing 10% of the then outstanding stock, net of the remaining shares to
be repurchased under the previously authorized repurchase program). The Company
had repurchased approximately 295,500 shares in total under the March 27, 1997
repurchase program at a cost of approximately $4,896,000.
20. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value. Fair value estimates which were derived from discounted cash flows or
broker quotes cannot be substantiated by comparison to independent markets and,
in many cases, could not be realized in immediate settlement of the instrument.
CASH, FEDERAL FUNDS SOLD AND SHORT-TERM INVESTMENTS
For these short-term instruments, the carrying amount is a reasonable estimate
of fair value.
INVESTMENT SECURITIES, ASSETS HELD FOR SALE AND MORTGAGE-BACKED INVESTMENTS
For investment securities, assets held for sale (typically loans) and
mortgage-backed derivative investments, fair values are based on quoted market
prices or dealer quotes.
LOANS
For certain homogeneous categories of loans, such as residential mortgages, home
equity and indirect automobile loans, fair value is estimated using the quoted
market prices for securities backed by similar loans adjusted for differences in
loan characteristics or dealer quotes. The fair value of other types of loans
was estimated by discounting anticipated future cash flows using current rates
at which similar loans would be made to borrowers with similar credit ratings
and for the same remaining maturities.
DEPOSIT LIABILITIES
The fair value of non-certificate deposit accounts is the amount payable on
demand at the reporting date. The fair value of fixed maturity certificates of
deposit is estimated by discounting the anticipated future cash payments using
the rates currently offered for deposits of similar remaining maturities.
SHORT-TERM AND LONG-TERM BORROWINGS
The fair value of borrowings was determined by discounting the anticipated
future cash payments by using the rates currently available to the Company for
debt with similar terms and remaining maturities.
COMMITMENTS TO EXTEND CREDIT/SELL LOANS
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of customers. For fixed rate loan
commitments and obligations to deliver fixed rate loans, fair value also
considers the difference between committed rates and current levels of interest
rates.
VALUES NOT DETERMINED
SFAS No. 107 excludes certain financial instruments from its disclosure
requirements including, among others, real estate included in banking premises
and equipment, the intangible value of the Bank's portfolio of loans serviced
(both for itself and for others) and related servicing network and the
intangible value inherent in the Bank's deposit relationships (i.e., core
deposits). Accordingly, the aggregate fair value amounts presented are not
intended to represent the underlying value of the Bank.
The carrying amount and estimated fair values of the Bank's financial
instruments at December 31, 1997 and 1996 are represented as follows:
ABINGTON BANCORP, INC. 42 1997 ANNUAL REPORT
<PAGE> 106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
At December 31, 1997 1996
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands)
Carrying Carrying
or Notional Fair or Notional Fair
Amount Value Amount Value
------------------------- ------------------------
<S> <C> <C> <C> <C>
Financial instrument assets:
Cash and cash equivalents $ 13,475 $ 13,475 $ 9,708 $ 9,708
Securities 165,052 165,160 155,231 154,017
Loans, including held for sale, net 330,792 343,984 298,970 304,669
Mortgage servicing rights 26 26 56 56
Financial instrument liabilities:
Deposits $324,934 $327,563 $300,445 $302,149
Short-term borrowings 55,910 55,934 63,171 63,194
Long-term debt 110,000 109,241 84,353 83,155
Off-balance sheet financial instruments:
Commitments to grant loans $ 8,359 $ 8,359 $ 6,355 $ 6,355
Commitments to sell loans 1,415 1,415 2,516 2,516
Unadvanced funds on home equity
lines of credit 11,230 11,230 10,679 10,679
Commitments to advance funds under
construction loan agreements 2,242 2,242 2,758 2,758
Unadvanced funds on other lines of
credit 2,166 2,166 1,949 1,949
Interest rate swap agreement - - 12,964 12,984
</TABLE>
ABINGTON BANCORP, INC. 43 1997 ANNUAL REPORT
<PAGE> 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. PARENT COMPANY FINANCIAL STATEMENTS - ABINGTON BANCORP, INC. (PARENT
COMPANY ONLY)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
BALANCE SHEETS December 31, 1997
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C>
Assets:
Cash and cash equivalents $ 1,186
Investment in Bank ASB 35,765
Other assets 216
-------
Total assets $37,167
=======
Liabilities and stockholders' equity:
Liabilities:
Accrued expenses and other liabilities $ 845
-------
Total liabilities 845
-------
Total stockholders' equity 36,322
-------
Total liabilities and stockholders' equity $37,167
=======
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME Eleven Months December 31, 1997
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C>
Operating income:
Dividends from Bank $4,000
Interest income 13
------
Total operating income 4,013
Operating expenses 307
------
Income before income taxes and equity in undistributed earnings of subsidiaries 3,706
Income tax benefit (85)
------
Income before equity in undistributed earnings of subsidiaries 3,791
Equity in undistributed earnings of Bank 233
------
Net Income $4,024
======
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Statements of Cash Flows December 31, 1997
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C>
Cash flows from operating activities:
Net income $ 4,024
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of bank subsidiaries (233)
Other, net 59
-------
Net cash provided by operating activities 3,850
Cash flows from investing activities:
Net cash used in investing activities -
Cash flows from financing activities:
Proceeds from issuance of treasury and common stock 72
Dividends on common stock (559)
Repurchase of common stock (2,228)
-------
Net cash used in financing activities (2,715)
Net increase in cash and cash equivalents 1,135
Cash and cash equivalents at beginning of year 51
-------
Cash and cash equivalents at end of year $ 1,186
=======
</TABLE>
ABINGTON BANCORP, INC. 44 1997 ANNUAL REPORT
<PAGE> 108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. QUARTERLY DATA (UNAUDITED)
- --------------------------------------------------------------------------------
Operating results on a quarterly basis for the years ended December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996
- --------------------------------------------------------------------------------------------------------------------
(Dollars and outstanding shares in thousands, except per share data)
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest and dividend income $9,312 $9,140 $9,028 $8,817 $8,833 $8,684 $8,471 $8,344
Interest expense 5,251 5,069 5,007 4,764 4,916 4,928 4,856 4,817
------ ------ ------ ------ ------ ------ ------ ------
Net interest income 4,061 4,071 4,021 4,053 3,917 3,756 3,615 3,527
Provision for possible loan losses 157 158 157 158 120 120 120 120
------ ------ ------ ------ ------ ------ ------ ------
Net interest income, after provision
for possible loan losses 3,904 3,913 3,864 3,895 3,797 3,636 3,495 3,407
Non-interest income 1,436 1,212 1,201 1,137 984 1,062 1,057 1,074
Non-interest expenses 3,621 3,307 3,286 3,291 3,272 3,228 3,212 3,128
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes 1,719 1,818 1,779 1,741 1,509 1,470 1,340 1,353
Provision for income taxes 616 691 683 689 576 550 494 519
------ ------ ------ ------ ------ ------ ------ ------
Net income $1,103 $1,127 $1,096 $1,052 $ 933 $ 920 $ 846 $ 834
====== ====== ====== ====== ====== ====== ====== ======
Basic earnings per share $ .30 $ .31 $ .29 $ .28 $ .25 $ .24 $ .22 $ .22
====== ====== ====== ====== ====== ====== ====== ======
Diluted earnings per share $ .28 $ .29 $ .28 $ .26 $ .23 $ .23 $ .21 $ .21
====== ====== ====== ====== ====== ====== ====== ======
Weighted average common
shares outstanding 3,654 3,686 3,738 3,788 3,786 3,774 3,770 3,768
====== ====== ====== ====== ====== ====== ====== ======
Weighted average common
shares and share equivalents
outstanding 3,933 3,946 3,974 4,014 3,996 3,958 3,946 3,954
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
ABINGTON BANCORP, INC. 45 1997 ANNUAL REPORT
<PAGE> 109
STOCKHOLDER INFORMATION
STOCK MARKET DATA
The common stock of the Company is currently listed on the NASDAQ National
Market System (NMS) under the symbol "ABBK." The table below sets forth the
range of high and low sales prices for the stock for the quarters indicated.
Market quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission, and may not necessarily represent actual transactions.
Transactions through January 31, 1997 are for the common stock of the Bank.
Transactions on and after that date are for the common stock of the Company.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Price High Low Dividends Declared
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
1st quarter (through March 6, 1998) 22 19 $ -
1997
4th quarter 23 1/2 15 5/8 $.05
3rd quarter 17 12 3/4 $.05
2nd quarter 13 10 1/4 $.05
1st quarter 11 5/8 9 1/2 $.05
1996
4th quarter 10 7/8 8 7/16 $.05
3rd quarter 9 7 3/4 $.05
2nd quarter 8 1/8 7 1/4 $.05
1st quarter 8 7/8 7 23/32 $.05
1995
4th quarter 9 1/2 7 3/4 $.05
3rd quarter 8 1/2 6 3/4 $.05
2nd quarter 7 9/16 6 1/4 $.05
1st quarter 7 1/2 6 $.05
</TABLE>
As of March 6, 1998, the Company had approximately 801 stockholders of record
who held 3,565,800 outstanding shares of the Company's common stock. The number
of stockholders indicated does not reflect the number of persons or entities who
hold their common stock in nominee or "street" name through various brokerage
firms. If all such persons are included, the Company believes there are
approximately 1,100 beneficial owners of common stock.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K for the year ended December
31, 1997 as filed with the Securities Exchange Commission, is available to
stockholders without charge upon written request to:
Investor Relations
Abington Bancorp, Inc.
536 Washington Street
Abington, MA 02351
INQUIRIES
Robert M. Lallo
Senior Vice President and Treasurer
Abington Bancorp, Inc.
ABINGTON BANCORP, INC. 46 1997 ANNUAL REPORT
<PAGE> 110
<TABLE>
<CAPTION>
BANK DIRECTORS & OFFICERS
- --------------------------------------------------------------------------------
DIRECTORS BANK OFFICERS
<S> <C>
JAMES P. MCDONOUGH 1 JAMES P. MCDONOUGH 3
President and CEO President and CEO
Abington Bancorp, Inc.
President and CEO EDWARD J. MERRITT
Abington Savings Bank Executive Vice President - Operations
ROBERT J. ARMSTRONG MARIO A. BERLINGHIERI
President and General Manager Senior Vice President - Business Banking
Armstrong Construction Corp.
ROBERT M. LALLO 3
BRUCE G. ATWOOD 1 Senior Vice President - Treasurer & CFO
Vice President Operations
Hyer Industries, Inc. DONNA L. THAXTER
Senior Vice President - Consumer Banking
WILLIAM F. BORHEK 2
President DAVID J. AMES
William F. Borhek Associates Vice President - Business Banking
RALPH B. CARVER, JR. PAUL D. AMATO
President and Treasurer Assistant Vice President - Controller
Den-Lea Rental, Inc.
MARY E. BOOTHBY
JOEL S. GELLER 1 Credit Officer
Owner-Manager and Director
Abington Liquors Corp. RUTH E. COOK
Human Resources Officer
RODNEY HENRIKSON 2
Treasurer and Director ELAINE CROSSLAND
Henrikson Realty Corp. Branch Officer
A. STANLEY LITTLEFIELD 1 STEPHANIE DUNN
Attorney Vice President - Management Information Systems
Private Practice
IDA C. FRAZIER
JAY TIMOTHY NOONAN 2 Vice President - Compliance
Manager
J. P. Noonan Trans., Inc. MARY E. HAGEN
Assistant Vice President - Branch Administration
GORDON N. SANDERSON
Retired JULIE JENKINS
Vice President - Loan Operations
JAMES J. SLATTERY 1
President BETH LAPPEN
J. H. Slattery Insurance Assistant Vice President - Business Banking
Agency, Inc.
WILLIAM D. LEWIS
WAYNE P. SMITH Vice President - Business Banking
Treasurer and Director
Suburban Enterprises, Inc. STEPHEN K. LUCITT
Vice President - Business Banking
1: Member of Executive Committee
2: Member of Audit Committee BARBARA M. MANNING 3
Clerk of the Bank
DAVID J. MCCARTHY
Assistant Vice President
DEBORAH J. MINIER
Vice President - Loan Origination/Underwriting
LEWIS J. PARAGONA
Vice President - Human Resources
RAYMOND J. QUIGLEY
Assistant Vice President
EVELYNE A. RICO
Branch Officer
DIANNE ROWAN MCBRIDE
Assistant Vice President
CAROL M. SHARPLESS
Assistant Vice President
3: Officer of Bancorp
</TABLE>
ABINGTON BANCORP, INC. 47 1997 ANNUAL REPORT
<PAGE> 111
[CORPORATE INFORMATION PICTURE]
CORPORATE INFORMATION
- ---------------------
Corporate Office
Abington Bancorp, Inc.
536 Washington Street
Abington, MA 02351
(781) 982-3200
Independent Public Accountants
Arthur Andersen LLP
225 Franklin Street
Boston, MA 02110
(617) 330-4000
Legal Counsel
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
(617) 832-1000
Transfer Agent and Registrar
Registrar & Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
(800) 368-2548 x7760
<PAGE> 112
BANK OFFICES
ABINGTON
533 Washington Street
Abington, MA 02351
COHASSET
Shaw's Supermarket
Route 3A
Cohasset, MA 02025
HALIFAX
319 Monponsett Street
Halifax, MA 02338
HOLBROOK
778 South Franklin Street
Holbrook, MA 02343
HULL
523 Nantasket Avenue
Hull, MA 02045
KINGSTON
157 Summer Street
Kingston, MA 02364
PEMBROKE
175 Center Street
Pembroke, MA 02359
WHITMAN
584 Washington Street
Whitman, MA 02382
ADMINISTRATIVE OFFICES
538 Bedford Street
Abington, MA 02351
[APPLE LOGO]
(C) 1998 Abington Bancorp, Inc. Design by Red Leaf, Inc.
<PAGE> 113
APPENDIX B
<PAGE> 114
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934 for Quarter Ended March 31, 1998
----------------------------------------
Commission File Number 0-16018
ABINGTON BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Massachusetts 04-3334127
- --------------------------------- ---------------------------
(State or Other Jurisdiction (I.R.S. Identification No.)
of Incorporation or Organization)
536 Washington Street, Abington, Massachusetts 02351
- ----------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 982-3200
-------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No
--- ---
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date: 3,569,900 shares as of May 5,
1998.
<PAGE> 115
Certain statements in this Form 10-Q constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Further, any statements contained in this Form 10-Q that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "expect," "anticipate," "plan,"
"believe," "seek," "estimate," "internal" and similar words are intended to
identify expressions that may be forward-looking statements. Forward-looking
statements involve certain risks and uncertainties, and actual results may
differ materially from those contemplated by such statements. For example,
actual results may be adversely affected by the following possibilities: (1)
competitive pressure among depository institutions may increase; (2) changes in
interest rates may reduce banking interest margins; (3) general economic
conditions and real estate values may be less favorable than contemplated; (4)
adverse legislation or regulatory requirements may be adopted; and (5) the
impact of the Year 2000 issue may be more significant than currently
anticipated. Many of such factors are beyond the Company's ability to control or
predict. Readers of this Form 10-Q are accordingly cautioned not to place undue
reliance on forward-looking statements. The Company disclaims any intent or
obligation to update publicly any of the forward-looking statements herein,
whether in response to new information, future events or otherwise.
2
<PAGE> 116
ABINGTON BANCORP, INC.
FORM 10-Q
INDEX
Page
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998
(Unaudited) and December 31, 1997............................ 4
Consolidated Statements of Operations (Unaudited)
for the Three Months Ended March 31, 1998 and 1997........... 5
Consolidated Statements of Changes in Stockholders'
Equity (Unaudited) for the Three Months Ended
March 31, 1998 and 1997...................................... 6
Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 1998 and 1997........... 7
Notes to Unaudited Consolidated Financial Statements......... 9
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations................ 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk... 26
Part II Other Information
Item 1. Legal Proceedings ........................................... 27
Item 2. Change in Securities ........................................ 27
Item 3. Defaults upon Senior Securities.............................. 27
Item 4. Submission of Matters to a Vote of Security Holders.......... 27
Item 5. Other Information............................................ 27
Item 6. Exhibits and Reports on Form 8-K............................. 27
Signature Page........................................................... 31
Index to Exhibits........................................................ 32
3
<PAGE> 117
ABINGTON BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1998 1997
---------- -----------
(In Thousands)
ASSETS
<S> <C> <C>
Cash and due from banks..................... $ 10,185 $ 13,312
Short-term investments...................... 181 163
-------- ---------
Total cash and cash equivalents........... 10,366 13,475
-------- ---------
Loans held for sale......................... 1,131 1,332
Securities:
Mortgage-backed investments - held for
investment - market value of $ 63,894
in 1998 and $ 64,129 in 1997............ 63,602 64,021
Securities available for sale - at
market value............................ 107,648 101,031
Loans....................................... 342,719 331,740
Less:
Allowance for possible loan losses...... (2,470) (2,280)
-------- ---------
Loans, net.............................. 340,249 329,460
-------- ---------
Federal Home Loan Bank stock................ 8,793 8,151
Banking premises and equipment, net......... 7,143 6,294
Other real estate owned, net................ 265 265
Intangible assets........................... 3,166 3,284
Other assets................................ 7,475 4,673
-------- ---------
$ 549,838 $ 531,986
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits.................................... $ 333,210 $ 324,934
Short-term borrowings....................... 40,760 55,910
Long-term debt.............................. 135,500 110,000
Accrued taxes and expenses.................. 3,620 3,337
Other liabilities........................... 2,164 1,484
-------- ---------
Total liabilities....................... 515,254 495,665
---------- ---------
Commitments and contingencies
Stockholders' equity:
Serial preferred stock, $.10 par value,
3,000,000 shares authorized; none issued. - -
Common stock, $.10 par value 12,000,000
shares authorized; 4,747,000 and 4,676,000
shares issued in 1998 and 1997, respectively 475 468
Additional paid-in capital................ 21,367 21,094
Retained earnings......................... 20,458 19,858
-------- ---------
42,300 41,420
Treasury stock - 1,183,000 and 1,039,000 shares
for 1998 and 1997, respectively, at cost.. (8,884) (5,931)
Unearned compensation - ESOP.............. (210) (231)
Other accumulated comprehensive income -
Net unrealized gain on available for
sale securities, net of taxes........... 1,378 1,063
-------- --------
Total stockholders' equity.............. 34,584 36,321
-------- ---------
$ 549,838 $ 531,986
======== =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 118
ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------
1998 1997
---------- -----------
(In thousands, except per share data)
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans ....................... $ 6,508 $ 6,039
Interest on mortgage-backed investments .......... 2,098 2,230
Interest on bonds and obligations ................ 594 393
Dividend income .................................. 150 147
Interest on short-term investments ............... 32 8
---------- ----------
Total interest and dividend income ............. 9,382 8,817
---------- ----------
Interest expense:
Interest on deposits .............................. 2,841 2,680
Interest on short-term borrowings ................. 604 817
Interest on long-term debt ........................ 1,902 1,267
---------- ----------
Total interest expense ......................... 5,347 4,764
---------- ----------
Net interest income ................................ 4,035 4,053
Provision for possible loan losses ................. 190 158
---------- ----------
Net interest income, after provision for
Possible loan losses ............................. 3,845 3,895
---------- ----------
Non-interest income:
Loan servicing fees .............................. 115 143
Other customer service fees ...................... 861 680
Gain on sales of securities, net ................. 365 110
Gain on sales of mortgage loans, net ............. 68 81
Gain on sales and write-down of
other real estate owned, net .................... -- 16
Other .............................................. 84 107
---------- ----------
Total non-interest income ...................... 1,493 1,137
---------- ----------
Non-interest expense:
Salaries and employee benefits ................... 1,753 1,620
Occupancy and equipment expenses ................. 676 580
Other non-interest expense ....................... 1,176 1,091
---------- ----------
Total non-interest expense ..................... 3,605 3,291
---------- ----------
Income before provision for income
taxes ..................................... 1,733 1,741
Provision for income taxes ......................... 597 689
---------- ----------
Net income ..................................... $ 1,136 $ 1,052
========== ==========
Earnings per share
Basic -
Net income per share ........................ $ .32 $ .28
========== ==========
Weighted average common shares .............. 3,586,000 3,788,000
========== ==========
Diluted -
Net income per share .......................... $ .30 $ .26
========== ==========
Weighted average common shares and share equivalents 3,852,000 4,014,000
========== ==========
Dividends per share ................................ $ .15 $ .05
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
5
<PAGE> 119
ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Net
Unrealized
Gain
(Loss) on
Additional Available Unearned
Common Paid-In Retained Treasury for Sale Compensa-
Stock Capital Earnings Stock Securities tion-ESOP Total
- ----------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 ......... $468 $ 21,094 $ 19,858 $(5,931) $ 1,063 $(231) $ 36,321
Net income ........................... -- -- 1,136 -- -- -- 1,136
Decrease in unearned compen-
sation - ESOP ...................... -- -- -- -- -- 21 21
Increase in unrealized gain on
available for sale securities,
net of taxes ....................... -- -- -- -- 315 -- 315
Issuance of stock .................... 7 273 -- -- -- -- 280
Repurchase of stock .................. -- -- -- (2,953) -- -- (2,953)
Dividends declared ($.15 per share) .. -- -- (536) -- -- -- (536)
---- -------- -------- ------- ------- ----- --------
Balance at March 31, 1998 ............ $475 $ 21,367 $ 20,458 $(8,884) $ 1,378 $(210) $ 34,584
==== ======== ======== ======= ======= ===== ========
Balance at December 31, 1996 ......... $233 $ 20,923 $ 16,455 $(3,703) $ ( 50) $(312) $ 33,546
Net income ........................... -- -- 1,052 -- -- -- 1,052
Decrease in unearned compen-
sation - ESOP ...................... -- -- -- -- -- 20 20
Issuance of stock .................... -- 8 -- -- -- -- 8
Increase in unrealized loss on
available for sale securities,
net of taxes ....................... -- -- -- -- (602) -- (602)
Dividends declared ($.05 per share) .. -- -- (189) -- -- -- (189)
---- -------- -------- ------- ------- ----- --------
Balance at March 31, 1997 ............ $233 $ 20,931 $ 17,318 $(3,703) $ (652) $(292) $ 33,835
==== ======== ======== ======= ======= ===== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 120
ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................ $ 1,136 $ 1,052
Adjustments to reconcile net income to net
cash provided (used) by operating
activities:
Provision for loan losses ......................... 190 158
(Gain) loss on sales and write-down of
other real estate owned, net .................... -- (16)
Amortization, accretion and depreciation,
net ............................................. 545 447
Gain on sales of securities, net ....................... (365) (110)
Loans originated for sale in the
secondary market ................................... (7,308) (3,672)
Proceeds from sales of loans ........................ 7,509 6,608
Gain on sales of mortgage loans, net ................ (68) (81)
Other, net .......................................... (2,419) (106)
-------- --------
Net cash provided (used) by operating
activities ........................................ (780) $ 4,280
-------- --------
Cash flows from investing activities:
Purchase of held for investment
securities ........................................ (1,982) --
Proceeds from principal payments received
on held for investment securities ................. 2,363 1,443
Proceeds from sales of available for sale
securities ........................................... 7,045 7,836
Proceeds from principal payments on
available for sale securities ........................ 12,995 2,892
Purchase of available for sale securities ............. (25,762) (15,449)
Loans originated/purchased, net ....................... (10,911) (4,180)
Proceeds from sales of loans held in portfolio ........ -- --
Purchases of FHLB stock ............................... (642) --
</TABLE>
See accompanying notes to unaudited consolidated financial statements
7
<PAGE> 121
ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
March 31,
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Purchase of banking premises and equipment
and improvements to other real estate
owned ............................................ $ (1,177) $ (174)
Proceeds from sales of other real estate
owned ............................................ -- 121
-------- --------
Net cash provided (used) by investing
activities ....................................... (18,071) (7,511)
Cash flows from financing activities:
Net increase in deposits .......................... 8,276 5,229
Net increase (decrease) in borrowings with original
maturities of three months or less ............... (20,150) (5,221)
Proceeds from short-term borrowings with
maturities in excess of three months ............. 10,000 --
Principal payments on short-term borrow-
ings with maturities in excess of
three months ..................................... (5,000) (7,000)
Proceeds from issuance of long-term debt .......... 30,000 18,000
Principal payments on long term debt .............. (4,500) (5,467)
Proceeds from exercise of stock options ........... 256 8
Purchase of treasury stock ......................... (2,953) --
Cash paid for dividends ............................ (187) (189)
-------- --------
Net cash provided from financing
activities ...................................... 15,742 5,360
-------- --------
Net increase (decrease)in cash and cash
equivalents ...................................... (3,109) 2,129
Cash and cash equivalents at beginning of
period ........................................... 13,475 $ 9,708
-------- --------
Cash and cash equivalents at end of period ......... $ 10,366 $ 11,837
======== ========
Supplemental cash flow information:
Interest paid on deposits ....................... $ 2,833 $ 2,680
Interest paid on borrowed funds ................. 2,491 2,074
Income taxes paid ............................... 355 1,011
Transfers to other real estate owned,
net ............................................ -- --
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
8
<PAGE> 122
ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Abington Bancorp, Inc. (the "Company") is a one-bank holding company
which owns all of the outstanding capital stock of Abington Savings
Bank ("the Bank"). Abington Bancorp, Inc., was reestablished as the
Bank's holding company on January 31, 1997. Previously, the Company's
predecessor, also known as Abington Bancorp, Inc., had served as the
Bank's holding company from February 1988 until its dissolution in
December 1992. The Company's primary business is serving as the holding
company of the Bank.
The accompanying consolidated financial statements as of March 31, 1998
and for the three months periods ended March 31, 1998 and 1997 have
been prepared by the Company without audit, and reflect all adjustments
(consisting of normal recurring adjustments) which, in the opinion of
management, are necessary to reflect a fair statement of the results of
the interim periods presented. On January 31, 1997, in connection with
the holding company formation, each share of the Bank's common stock
previously outstanding was converted automatically into one share of
common stock of the Company, and the Bank became a wholly-owned
subsidiary of the Company. This reorganization had no impact on the
consolidated financial statements. Certain information and footnote
disclosures normally included in the annual consolidated financial
statements which are prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Accordingly, the
Company believes that although the disclosures are adequate to make the
information presented not misleading, these consolidated financial
statements should be read in conjunction with the footnotes contained
in the Bank's consolidated financial statements as of and for the year
ended December 31, 1997, which are included in the Company's Annual
Report to Stockholders. Interim results are not necessarily indicative
of results to be expected for the entire year.
The consolidated financial statements include the accounts of Abington
Bancorp, Inc. and its wholly-owned subsidiary, Abington Savings Bank.
Abington Savings Bank also includes its wholly-owned subsidiaries, Holt
Park Place Development Corporation and Norroway Pond Development
Corporation each typically owning properties being marketed for sale,
ABBK Corporation, which invested in real estate limited partnerships
and was dissolved in January 1997, and Abington Securities Corporation,
which invests primarily in obligations of the United States Government
and its agencies and equity securities. All significant intercompany
balances and transactions have been eliminated in consolidation.
9
<PAGE> 123
ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(continued)
B) DIVIDEND DECLARATION
The Board of Directors of Abington Bancorp., Inc. declared a cash
dividend of $.05 per share and a special cash dividend of $.10 per share
to holders of its common stock in March 1998. These dividends were
payable on April 23, 1998 to stockholders of record as of the close of
business on April 9, 1998.
10
<PAGE> 124
ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998 (continued)
C) Stock Repurchase Program
On March 27, 1997, the Company announced that its Board of Directors had
authorized the Company to repurchase up to 10% (375,000 shares) of its currently
outstanding Common stock from time to time at prevailing market prices.
Additionally, on February 24, 1998, the Company announced that its Board of
Directors had authorized to purchase an additional 10% (347,000) of its
outstanding Common stock, as adjusted for amounts remaining to be repurchased as
under the March 1997 plan. The Board delegated to the discretion of the
Company's senior management the authority to determine the timing of the
repurchase program's commencement, subsequent purchases and the prices at which
the repurchases will be made.
As of May 5, 1998, the Company had repurchased 309,000 shares of its common
stock under these plans at a total cost of approximately $5,181,000. All of the
repurchases were subsequent to March 31, 1997.
D) Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses). Components of
comprehensive income are net income and all other non-owner changes in equity.
This statement requires that an enterprise (a) classified items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separate from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. This statement will be effective for the Company's financial
statements, issued for the fiscal year ending December 31, 1998.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
Below is comprehensive income of the Company reported in accordance with SFAS
No. 130 (dollars in 000's):
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Net income as reported $1,136 $ 1,052
Unrealized gains/(losses) on
securities, net of tax effects . 461 (646)
Less: Reclassification
Adjustment for securities
gains included in net effects
income, net of tax 146 44
------ -------
$1,451 $ 450
====== =======
</TABLE>
11
<PAGE> 125
ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998 (continued)
E) Earnings Per Share Calculation
The Company computes earnings per share in accordance with SFAS No. 128. This
Statement supersedes APB No. 15 regarding the presentation of earnings per share
("EPS") on the face of the income statement. SFAS No. 128 replaced the
presentation of Primary EPS with a Basic EPS calculation that excludes the
dilutive effect of common stock equivalents. The Statement requires a dual
presentation of Basic and Diluted EPS, which is computed similarly to Fully
Diluted EPS pursuant to APB No. 15, for all entities with complex capital
structures. This Statement was effective for fiscal years ending after December
15, 1997 and requires restatement of all prior period EPS data presented,
including quarterly information. The Company's common stock equivalents consist
primarily of dilutive outstanding stock options computed under the treasury
stock method. Basic and Diluted EPS computations for the three months ended
March 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(Dollars in thousands, except share and per share amounts)
<S> <C> <C>
Basic earnings per share computation:
Numerator:
Net income ..................... $ 1,136 $ 1,052
Denominator:
Average shares outstanding ..... 3,586,000 3,788,000
Basic earnings per share ........... .32 .28
Diluted earnings per share computation:
Numerator:
Net income ..................... 1,136 1,052
Denominator:
Average shares outstanding ..... 3,586,000 3,788,000
Dilutive stock options ......... 266,000 226,000
---------- ----------
Average diluted shares outstanding . 3,852,000 4,014,000
---------- ----------
Diluted earnings per share ............ .30 .26
</TABLE>
12
<PAGE> 126
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's results of operations depend primarily on its net interest income
after provision for possible loan losses, its revenue from other banking
services and non-interest expenses. The Company's net interest income depends
upon the net interest rate spread between the yield on the Company's loan and
investment portfolios and the cost of funds, consisting primarily of interest
expense on deposits and Federal Home Loan Bank advances. The interest rate
spread is affected by the match between the maturities or repricing intervals of
the Company's assets and liabilities, the mix and composition of interest
sensitive assets and liabilities, economic factors influencing general interest
rates, loan demand and savings flows, as well as the effect of competition for
deposits and loans. The Company's net interest income is also affected by the
performance of its loan portfolio, amortization or accretion of premiums or
discounts on purchased loans and mortgage - backed securities, and the level of
non-earning assets. Revenues from loan fees and other banking services depend
upon the volume of new transactions and the market level of prices for
competitive products and services. Non-interest expenses depend upon the
efficiency of the Company's internal operations and general market and economic
conditions.
NET INTEREST INCOME
Net interest income is affected by the mix and volume of assets and liabilities,
the movement and level of interest rates, and interest spread, which is the
difference between the average yield received on earning assets and the average
rate paid on deposits and borrowings. The Company's net interest rate spread was
3.06% for the quarter ended March 31, 1998 and 3.36% for the quarter ended March
31, 1997. The first quarter results of 1998 includes approximately $250,000 of
accelerated premium amortization related to purchased loan portfolios which had
unusually high customer prepayment activity during the three months ended March
31, 1998. This reflects the lower long term interest rates which have existed
through the latter portion of 1997 and through the first quarter of 1998 which
has caused generally lower yields on newly originated or purchased loans and
investment securities. Excluding these yield adjustments, the resulting net
interest rate spread would have been approximately 3.26%.
The level of nonaccrual (impaired) loans and other real estate owned also has an
impact on net interest income. At March 31, 1998, the Company had $475,000 in
nonaccrual loans, and $265,000 in other real estate owned, compared to $622,000
in nonaccrual loans and $265,000 in other real estate owned as of December 31,
1997.
13
<PAGE> 127
MANAGEMENT'S DISCUSSION AND ANALYSIS
The table below presents the components of interest income and expense for the
major categories of assets and liabilities for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
------ ------
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans ............ $6,508 $6,039
Interest on mortgage-backed investments 2,098 2,230
Interest on bonds and obligations ..... 594 393
Dividend income ....................... 150 147
Interest on short-term investments .... 32 8
------ ------
Total interest and dividend income ... $9,382 9,382
------ ------
Interest expense:
Interest on deposits .................. 2,841 2,680
Interest on short-term borrowings ..... 604 817
Interest on long-term debt ............ 1,902 1,267
------ ------
Total interest expense ............... 5,347 4,764
------ ------
Net interest income .................... $4,035 $4,053
====== ======
</TABLE>
A breakdown of the components of the Company's net interest-rate spread is as
follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
------ ------
<S> <C> <C>
Weighted average yield earned on:
Loans ................................ 7.81% 8.10%
Mortgage-backed investments .......... 6.63 6.88
Bonds and obligations ................ 6.98 7.32
Marketable and other equity securities 4.68 4.92
Short-term investments ............... 5.69 2.55
Weighted average yield earned on
interest-earning assets .............. 7.37 7.62
Weighted average rate paid on:
NOW and non-interest NOW deposits .... .81 .86
Savings deposits ................... 2.24 2.29
Time deposits ...................... 5.60 5.66
Total deposits ..................... 3.49 3.58
Short-term borrowings .............. 5.48 5.38
Long-term debt ..................... 6.01 5.84
Weighted average rate paid on
interest-bearing liabilities ......... 4.31 4.26
Net interest-rate spread ................ 3.06 3.36%
</TABLE>
14
<PAGE> 128
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
RATE/VOLUME ANALYSIS
The following tables present, for the periods indicated, the change in interest
income and the change in interest expense attributable to the change in interest
rates and the change in the volume of earning assets and interest-bearing
liabilities. The change attributable to both volume and rate has been allocated
proportionately to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Three Months Ended March 31
-------------------------------------
1998 vs. 1997
Increase (decrease)
-------------------------------------
Due to
-------------------------------------
Volume Rate Total
-------------------------------------
(In thousands)
<S> <C> <C> <C>
Interest and dividend income:
Loans ......................... $ 1,688 $(1,219) $ 469
Mortgage-backed investments ... (53) (79) (132)
Bonds and obligations ......... 321 (120) 201
Equity securities ............. 36 (33) 3
Short-term investments ........ 9 15 24
------- ------- -----
Total interest and dividend
income ................... 2,001 (1,436) 565
------- ------- -----
Interest expense:
NOW deposits .................. 59 (41) 18
Savings deposits .............. 37 (42) (5)
Time deposits ................. 286 (138) 148
Short-term borrowings ......... (319) 106 (213)
Long-term debt ................ 596 39 635
------- ------- -----
Total interest expense .... 659 77 583
------- ------- -----
Net interest income ............. $ 1,342 (1,359) $ (18)
======= ======= =====
</TABLE>
15
<PAGE> 129
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
GENERAL. Net income for the quarter ended March 31, 1998 was $1,136,000 or $.30
per diluted share compared to a net income of $1,052,000 or $.26 per diluted
share in the corresponding period of 1997, a net increase of $84,000 or 8.0%.
The overall improvement in net income was mainly attributable to increases in
customer service fees and gains on sales of securities.
INTEREST AND DIVIDEND INCOME. Interest and dividend income increased $565,000 or
6.4% during the three month period ended March 31, 1998 as compared to the same
period in 1997. The increase was attributable to increases in earning assets,
particularly loans, offset in part by reductions in the yield earned on those
assets. The balance of average earning assets for the three month period ended
March 31, 1998 was approximately $509,084,000 as compared to $462,640,000 for
the same period in 1997, an overall increase of $46,444,000 or 10.0%. The
increase in earning assets was generally due to increases in average loan
balances which were $333,375,000 for the three months ended March 31, 1998, as
compared to $298,254,000 for the same period in 1997, an increase of $35,121,000
or 11.8%. This increase was generally caused by larger volumes of commercial
loan originations in 1997 and into 1998 as well as higher residential loan
balances which were the result of the steady volume of loan originations and
purchases in this area throughout 1997 and into 1998. See "Liquidity and Capital
Resources" and "Asset-Liability Management" for further discussion of the
Company's investment strategies.
The average yield earned on loans decreased for the first quarter of 1998 as
compared to 1997 primarily due to the effect of higher prepayments on higher
yielding residential loans and lower rates earned on newer originations on
purchases over the past six months. Additionally, loan yields were negatively
affected by yield adjustments on loan pools which had been acquired at a premium
purchase price, which were the result of unusually heavy prepayment activity on
those pools associated with the favorable refinancing market. The yield on loans
for the three-months ended March 31, 1998 was 7.81% as compared to 8.10% for the
same period in 1997. Management estimates that excluding the unusual prepayment
adjustments during the first quarter of 1998, the yield on loans would have been
approximately 8.11% or $250,000 higher than reported. Given the current
relatively low long term interest rates and relatively strong economy similar
yield adjustments could occur in the future. Yields on loans were positively
affected by growth in the Company's commercial loan portfolio which has grown to
approximately $53,800,000 at March 31, 1998 from $38,400,000 at March 31, 1997,
an increase of $15,400,000 or 40%. Commercial loans typically carry a higher
yield than residential mortgages.
Average balances of mortgage-backed investments and investment securities were
$126,587,000 and $34,051,000, respectively, for the three months ended March 31,
1998 as compared to $129,699,000 and $21,486,000, respectively, for the
corresponding period in 1997. These balances, when combined increased by
approximately $9,453,000 or 6.3%. The yield on mortgage-backed investments and
investment securities decreased to 6.63% and 6.98%, respectively, in the first
quarter of 1998 as compared to 6.88% and 7.32%, respectively, in the same period
in 1997. The declines in these yields reflects the lower interest rate
environment for investment opportunities since mid-1997 as well as the effects
of increased prepayments on the Company's higher yielding
16
<PAGE> 130
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
securities in the mortgage-backed investment portfolio, the proceeds of which
were invested at lower rates.
INTEREST EXPENSE. Interest expense for the quarter ended March 31, 1998
increased $583,000 or 12.2% compared to the same period in 1997, generally due
to increases in deposit balances, which was partially offset by decreases in the
average rates paid on deposits. The blended weighted average rate paid on
deposits and borrowed funds was 4.31% for the three months ended March 31, 1998
as compared to 4.26% for the same period in 1997. The weighted average rates
paid on deposits was 3.49% for the quarter ended March 31, 1998 as compared to
3.58% for the same period in 1997. The overall cost of deposits has declined in
the first quarter of 1998 as compared to the same period in 1997, generally due
to the continued success of promotional efforts to attract core deposits (NOW
accounts, demand deposits, savings and money markets), which typically have a
lower cost of funds than time deposits and borrowings, as well as due to overall
declines in the cost of funds related to time deposits. The average balance of
core and time deposits rose to $172,722,000 and $152,886,000, respectively, for
the first quarter of 1998 as compared to $158,968,000 and $140,755,000,
respectively, for the corresponding period in 1997, increases of 8.7% and 8.6%,
respectively. Additionally, the weighted average rate paid on time deposits
declined to 5.60% for the first quarter of 1998, as compared to 5.66% in 1997.
This change reflects the re-financing of various certificates as they have
matured at lower rates than they had been paying in previous periods and, to a
lesser extent, the result of the generally declining rate environment which has
existed over the past year. The Company will continue to closely manage its cost
of deposits by continuing to seek methods of acquiring new core deposits and
maintaining its current core deposits while prudently adding time deposits at
reasonable rates in comparison to local markets and other funding alternatives,
including borrowings. The average balances of borrowed funds increased overall,
during the first quarter of 1998 as compared to 1997, to $170,636,000 from
$147,618,000, an increase of 15.6%. This increase generally relates to the
funding of certain loan portfolio purchases in the fourth quarter of 1997 and
the first quarter of 1998. The overall weighted average rates paid on borrowed
funds increased to approximately 5.87% for the quarter ended March 31, 1998 from
5.65% in 1997. This increase was generally due to economic rate increases in
March 1997 as well as a result of management's decision to extend approximately
$28 million in borrowings from short term to long term (generally refinanced out
3 and 4 years) at the end of the first and into the second quarter of 1997 to
provide further protection against potential interest rate increases. The
Company will continue to evaluate the use of borrowing as an alternative funding
source for asset growth in future periods. See "Asset-Liability Management" for
further discussion of the competitive market for deposits and overall strategies
for uses of borrowed funds.
NON-INTEREST INCOME. Total non-interest income increased $355,000 or 31.2% in
the first quarter of 1998 in comparison to the same period in 1997. Customer
service fees, which were $861,000 for the quarter ended March 31, 1998 as
compared to $680,000 for 1997, for an increase of $181,000 or 26.6%, rose
primarily due to growth in deposit accounts, primarily NOW and checking account
portfolios. Loan servicing fees and gains on sales of mortgage loans were
$115,000 and $68,000, respectively, for the first quarter of 1998 as compared to
$143,000 and $81,000, respectively, for the same period in 1997, a combined
decrease of $41,000 or 18.3%. This generally is reflective of timing in the
amortization of previously capitalized servicing rights, lower balances
17
<PAGE> 131
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
of loans serviced for others, and also due to fewer loans being sold to date in
1998. The average balances of loans serviced for others declined to $202,145,000
for the first quarter of 1998 as compared to $234,358,000 in the corresponding
period in 1997, a decline of 13.7%. Generally declining trends in servicing
income are expected to continue due to the Company's strategic change of selling
wholesale mortgage production on a servicing released basis and also due to
accounting changes for loans sold with servicing retained prescribed by FASB No.
122-"Accounting for Mortgage Servicing Rights" and FASB No. 125-"Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities".
Gains on sales of securities were $365,000 for the first quarter of 1998 as
compared to $110,000 for 1997 for an increase of $255,000 or 231.8%. These gains
are reflective of a consistently strong market for equity securities. Gains on
sales of other real estate owned declined in the first quarter of 1998 as
compared to the same period in 1997 as gains were $16,000 in 1997 due to better
than expected sale prices on a property sold during the quarter while there were
no sales of other real estate owned during the comparable quarter in 1998.
NON-INTEREST EXPENSES. Non-interest expenses for the quarter ended March 31,
1998 increased $314,000 or 9.5% compared to the same period in 1997. Salaries
and employee benefits increased 8.2% or $133,000 primarily due to increases in
health insurance costs and staffing levels in the Company's business banking and
retail areas, including the Bank's new supermarket branch in Cohasset which
opened during the third quarter of 1997. These increases correspond with the
Company's strategic focuses of increasing commercial loans and attracting core
deposits. Occupancy expenses increased $96,000 or 16.6% primarily due to
increased capital and operating expenditures related to the Cohasset branch, and
to the general inflationary and capital expenditure increases, particularly in
technology. Other non-interest expenses also increased $85,000 or 7.8% for the
quarter ended March 31, 1998 in comparison to the same period in 1997, generally
due to increased costs associated with statement rendering and item processing
as well as other operating costs associated with servicing an expanded retail
customer base.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses was
$190,000 for the quarter ended March 31, 1998 as compared to $158,000 for the
same period in 1997. This increase of $32,000 primarily reflects management's
estimate of general increased risk associated with increases in the Company's
commercial loan portfolios over the past year, considering the increased risk
associated with these loans as compared to residential real estate.
PROVISION FOR INCOME TAXES. The Company's effective income tax rate for the
quarter ended March 31, 1998 was 34.5% compared to 39.6% for the quarter ended
March 31, 1997. The lower effective tax rate in comparison to statutory rates
for both periods is reflective of the levels of income earned by certain non-
bank subsidiaries which are taxed, for state tax purposes, at lower rates.
Additionally, the overall effective tax rate is influenced by the proportion of
income generated by non-bank subsidiaries. In 1998 more income was generated
through non-bank subsidiaries as compared to the first quarter of 1997.
18
<PAGE> 132
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
ASSET/LIABILITY MANAGEMENT
The objective of asset/liability management is to ensure that liquidity, capital
and market risk are prudently managed. Asset/liability management is governed by
policies reviewed and approved annually by the Company's Board of Directors
(Board). The Board delegates responsibility for asset/liability management to
the corporate Asset/Liability Management Committee (ALCO). ALCO sets strategic
directives that guide the day-to-day asset/liability management activities of
the Company. ALCO also reviews and approves all major funding, capital and
market risk-management programs. ALCO is comprised of members of management and
executive management of the Company and the Bank.
Interest rate risk is the sensitivity of income to variations in interest rates
over both short-term and long-term time horizons. The primary objective of
interest rate risk management is to control this risk within limits approved by
the Board and by ALCO. These limits and guidelines reflect the Company's
tolerance for interest rate risk. The Company's attempts to control interest
rate risk by identifying potential exposures and developing tactical plans to
address such potential exposures. The Company quantifies its interest rate risk
exposures using sophisticated simulation and valuation models, as well as a more
simple gap analysis. The Company manages its interest rate exposures by
generally using on-balance sheet strategies, which is most easily accomplished
through the management of the durations and rate sensitivities of the Company's
investments, including mortgage-backed securities portfolios, and by extending
or shortening maturities of borrowed funds. Additionally, pricing strategies,
asset sales and, in some cases, hedge strategies are also considered in the
evaluation and management of interest rate risk exposures.
The Company uses simulation analysis to measure the exposure of net interest
income to changes in interest rates over a 1 to 5 year time horizon. Simulation
analysis involves projecting future interest income and expense from the
Company's assets, liabilities, and off-balance sheet positions under various
interest rate scenarios.
The Company's limits on interest rate risk specify that if interest rates were
to ramp up or down 200 basis points over a 12 month period, estimated net
interest income for the next 12 months should decline by less than 10%. The
following table reflects the Company's estimated exposure, as a percentage of
estimated net interest income for the next 12 months, which does not materially
differ from the impact on net income, on the above basis:
Rate Change Estimated Exposure as a
(Basis Points) % of Net Interest Income
+200 3.50%
-200 (2.70%)
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<PAGE> 133
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Company uses valuation analysis to provide insight into the exposure of
earnings and equity to changes in interest rates based on the balance sheet
position of the Company at a set point in time without regard to potential
future strategic changes. Valuation analysis involves projecting future cash
flows from the Company's assets, liabilities and off-balance sheet positions and
then discounting such cash flows at appropriate interest rates. The Company's
economic value of equity is the estimated net present value of its assets,
liabilities and off-balance sheet positions.
The Company's limits on interest rate risk specify that if interest rates were
to shift immediately up or down 200 basis points, the estimated economic value
of equity should decline by less than 25%. The following table reflects the
Company's estimated exposure as a percentage of estimated economic value of
equity assuming an immediate shift in interest rates:
Rate Change Estimated Exposure as a
(Basis Points) % of Economic Value
+200 (5.7%)
-200 (16.7%)
Interest rate gap analysis provides a static view of the maturity and repricing
characteristics of the on-balance sheet and off-balance sheet positions. The
interest rate gap analysis is prepared by scheduling all assets, liabilities and
off-balance sheet positions according to scheduled repricing or maturity.
Interest rate gap analysis can be viewed as a short-hand complement to
simulation and valuation analysis.
The Company's limits on interest rate risk specify that rate sensitive assets be
maintained at at least 40% of rate sensitive liabilities at the cumulative
1-year gap, as presented on a basis consistent with methods prescribed by
generally accepted accounting principles. As of March 31, 1998, the Company was
liability sensitive with rate sensitive assets at 57% of rate sensitive
liabilities at the 1-year gap.
The Company's policy is to match, as well as possible, the interest rate
sensitivities of its assets and liabilities. Residential mortgage loans, which
the Company currently originates or purchases for the Company's own portfolio,
are primarily 1-year and 3-year adjustable rate mortgages. Fixed rate
residential mortgage loans originated by the Company are primarily sold in the
secondary market, although in each year since 1989 the Company has originated or
purchased approximately $30,000,000 primarily in shorter-term fixed rate
mortgage loans (generally 10-years to 15-years) to be held in portfolio in order
to provide a hedge against the Company's asset sensitivity.
The Company also emphasizes loans with terms to maturity or repricing of 3 years
or less, such as certain adjustable rate residential mortgage loans, commercial
mortgages, business loans, residential construction loans, second mortgages and
home equity loans.
Management desires to expand its interest earning asset base in future periods
primarily through growth in the Company's loan portfolio. Loans comprised
approximately 65.5% of the average
20
<PAGE> 134
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
interest earning assets for the first quarter of 1998. In the future, the
Company intends to be competitive in the residential mortgage market but plans
to place greater emphasis on consumer and commercial loans. The Company also has
been, and expects to remain, active in pursuing wholesale opportunities to
purchase loans. During the first quarter of 1998 and 1997, the Company acquired
approximately $26,000,000 and $7,700,000, respectively, of residential first
mortgages.
The Company has also used mortgage-backed investments (typically with weighted
average lives of 5 to 7 years) as a vehicle for fixed and adjustable rate
investment and as an overall asset/liability tool. These securities have been
highly liquid given current levels of prepayments in the underlying mortgage
pools and, as a result, have provided the Company with greater reinvestment
flexibility.
The level of the Company's liquid assets and the mix of its investments may
vary, depending upon management's judgment as to market trends, the quality of
specific investment opportunities and the relative attractiveness of their
maturities and yields. Management has been aggressively promoting the Company's
core deposit products since the first quarter of 1995, particularly checking and
NOW accounts. The success of this program has favorably impacted the overall
deposit growth to date, despite interest rate and general market pressures, and
has helped the Company to increase its customer base.
However, given the strong performance of money market mutual funds and the
equity markets in general, the Company and many of its peers have begun to see
lower levels of growth in time deposits as compared to prior years as customers
reflect their desire to increase their returns on investment. This pressure has
been exacerbated currently by the historically low long-term economic interest
rates. Management believes that the markets for future time deposit growth,
particularly with terms in excess of 2 years, will remain highly competitive.
Management will continue to evaluate future funding strategies and alternatives
accordingly as well as continuing to focus its efforts on attracting core,
retail deposit relationships.
The Company is also a voluntary member of the Federal Home Loan Bank ("FHLB") of
Boston. This borrowing capacity assists the Company in managing its
asset/liability growth because, at times, the Company considers it more
advantageous to borrow money from the FHLB of Boston than to raise money through
non-core deposits (i.e., certificates of deposit). Borrowed funds totaled
$176,260,000 at March 31, 1998 compared to $165,910,000 at December 31,1997.
These borrowings are primarily comprised of FHLB of Boston advances and have
primarily funded residential loan originations and purchases as well as
mortgage-backed investments and investment securities.
The following table sets forth maturity and repricing information relating to
interest sensitive assets and liabilities at March 31, 1998. The balance of such
accounts has been allocated among the various periods based upon the terms and
repricing intervals of the particular assets and liabilities. For example, fixed
rate mortgage loans and mortgage-backed securities, regardless of held in
portfolio or available for sale classification, are shown in the table in the
time periods corresponding to projected principal amortization computed based on
their respective weighted average maturities and weighted average rates using
prepayment data available from the secondary mortgage market.
21
<PAGE> 135
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Adjustable rate loans and securities are allocated to the period in which the
rates would be next adjusted. The following table does not reflect partial or
full prepayment of certain types of loans and investment securities prior to
scheduled contractual maturity. Since regular passbook savings and NOW accounts
are subject to immediate withdrawal, such accounts have been included in the
"Other Savings Accounts" category and are assumed to mature within 6 months.
This table does not include non-interest bearing deposits.
While this table presents a cumulative negative gap position in the 6 month to 5
year horizon, the Company considers its earning assets to be more sensitive to
interest rate movements than its liabilities. In general, assets are tied to
increases that are immediately impacted by interest rate movements while deposit
rates are generally driven by market area and demand which tend to be less
sensitive to general interest rate changes. In addition, other savings accounts
and money market accounts are substantially stable core deposits, although
subject to rate changes. A substantial core balance in these type of accounts is
anticipated to be maintained over time.
22
<PAGE> 136
<TABLE>
<CAPTION>
At March 31, 1998
Repricing/Maturity Interval
(1) (2) (3) (4) (5) (6)
Over
0-6 Mos. 6-12 Mos. 1-2 Yrs. 2-3 Yrs. 3-5 Yrs. 5 Yrs. Total
--------- --------- --------- -------- -------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets subject to interest rate adjustment:
Short-term investments ....................... $ 181 $ -- $ -- $ -- $ -- $ -- $ 181
Bonds and obligations ........................ 7,676 5,178 6,996 1,063 4,014 10,827 35,754
Mortgage-backed investments .................. 28,536 24,010 12,205 10,718 17,620 35,541 128,630
Mortgage loans subject to
rate review ................................. 34,368 18,430 20,565 31,681 18,315 -- 123,359
Fixed-rate mortgage loans .................... 35,076 48,980 58,314 28,115 23,655 7,430 201,570
Commercial and other loans ................... 8,064 3,516 2,730 2,081 2,530 -- 18,921
--------- --------- --------- -------- -------- ------- --------
Total .................................... $ 113,901 $ 100,114 $ 100,810 $ 73,658 $ 66,134 $53,798 $508,415
--------- --------- --------- -------- -------- ------- --------
Liabilities subject to interest rate adjustment:
Money market deposit accounts ................ 15,457 -- -- -- -- -- 15,547
Savings deposits - term
certificates ................................ 62,393 50,784 23,479 11,730 4,830 -- 153,216
Other savings accounts ....................... 128,304 -- -- -- -- -- 128,304
Borrowed funds ............................... 86,760 35,000 28,000 18,000 8,000 500 176,260
--------- --------- --------- -------- -------- ------- --------
Total .......................................... 292,914 85,784 51,479 29,730 12,830 500 473,237
--------- --------- --------- -------- -------- ------- --------
Excess (deficiency) of rate-
sensitive assets over rate-
sensitive liabilities ......................... $(179,013) $ 14,330 $ 49,331 $ 43,928 $ 53,304 $53,298 $ 35,178
--------- --------- --------- -------- -------- ------- --------
Cumulative excess (deficiency)
of rate-sensitive assets over
rate sensitive liabilities .................... $(179,013) $(164,683) $(115,352) $(71,424) $(18,120) $35,178
========= ========= ========= ======== ======== =======
Rate-sensitive assets as a
percent of rate-sensitive
liabilities (1) ............................... 38.9% 56.5% 73.2% 84.5% 96.2% 107.4%
</TABLE>
(1) Cumulative as to the amounts previously repriced or matured. Assets
held for sale are reflected in the period in which sales are expected
to take place. Securities classified as available for sale are shown at
repricing/maturity intervals as if they are to be held to maturity as
there is no definitive plan of disposition. They are also shown at
amortized cost.
23
<PAGE> 137
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Liquidity and Capital Resources
Payments and prepayments on the Company's loan and mortgage-backed investment
portfolios, sales of fixed rate residential loans, increases in deposits,
borrowed funds and maturities of various investments comprise the Company's
primary sources of liquidity. The Company is also a voluntary member of the FHLB
of Boston and, as such, is entitled to borrow an amount up to the value of its
qualified collateral that has not been pledged to outside sources. Qualified
collateral generally consists of residential first mortgage loans, securities
issued, insured or guaranteed by the U.S. Government or its agencies, and funds
on deposit at the FHLB of Boston. Short-term advances may be used for any sound
business purpose, while long-term advances may be used only for the purpose of
providing funds to finance housing. At March 31, 1998, the Company had
approximately $70,000,000 in unused borrowing capacity that is contingent upon
the purchase of additional FHLB of Boston stock. Use of this borrowing capacity
is also impacted by capital adequacy considerations.
The Company's short-term borrowing position consists primarily of FHLB of Boston
advances with original maturities of approximately 1 to 3 months. The Company
utilizes borrowed funds as a primary vehicle to manage interest rate risk, due
to the ability to easily extend or shorten maturities as needed. This enables
the Company to adjust its cash needs to the increased prepayment activity in its
loan and mortgage-backed investment portfolios, as well as to quickly extend
maturities when the need to further balance the Company's GAP position arises.
The Company regularly monitors its asset quality to determine the level of its
loan loss reserves through periodic credit reviews by members of the Company's
Management Credit Committee. The Management Credit Committee, which reports to
the Executive Committee of the Company's Board of Directors, also works on the
collection of non-accrual loans and disposition of real estate acquired by
foreclosure. The allowance for possible loan losses is determined by the
Management Credit Committee after consideration of several key factors
including, without limitation: potential risk in the current portfolio, levels
and types of non-performing assets and delinquency, and the expectations for the
future state of the regional economy and the potential impact that it may have
on loan collateral and future delinquencies. Workout approach and financial
condition of borrowers are also key considerations to the evaluation of
non-performing loans.
Non-performing assets were $795,000 at March 31, 1998, compared to $978,000 at
December 31, 1997, a decrease of $183,000 or 18.7%. The Company's ratio of
delinquent loans to total loans was .24% at March 31, 1998, as compared to .42%
at December 31, 1997. Management believes that overall trends in delinquencies
and non-performing assets will continue to be favorable in 1998.
During the first quarter of 1998, the Company maintained a general reserve for
other real estate owned, in light of the level of foreclosures, softness of the
local real estate market (particularly commercial) and costs associated with
selling properties. No provisions were made for possible losses on other real
estate owned in the first quarters of 1998 or 1997. The balance of the general
other real estate owned reserves at March 31, 1998 was approximately $60,000.
24
<PAGE> 138
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
There continues to be uncertainties regarding future events, particularly in
both the New England real estate market and the general economy. These events
could result in additional charge-offs, write-offs, changes in the level of the
allowance for loan or OREO losses and/or in the level of loans on non-accrual or
in foreclosure.
At March 31, 1998, the Company had outstanding commitments to originate and sell
residential mortgage loans in the secondary market amounting to $4,263,000 and
$5,092,000, respectively. The Company also has outstanding commitments to grant
advances under existing home equity lines of credit amounting to $16,602,000.
Unadvanced commitments under outstanding commercial and construction loans
totaled $8,506,000 as of March 31, 1998. The Company believes it has adequate
sources of liquidity to fund these commitments.
The Company's total stockholders' equity was $34,584,000 or 6.3% of total assets
at March 31, 1998, compared with $36,321,000 or 6.8% of total assets at December
31, 1997. The decrease in total stockholders' equity of approximately $1,737,000
or 4.8% primarily resulted from dividends paid and the effect of the Company's
stock repurchase program, offset in part by earnings of the Company and
increases in the market value of its portfolio of available for sale securities,
net of applicable taxes. In accordance with current guidelines, the net
unrealized gain on available for sale securities has not been included in
regulatory capital calculations.
Bank regulatory authorities have established a capital measurement tool called
"Tier 1" leverage capital. A 4.00% ratio of Tier 1 capital to assets now
constitutes the minimum capital standard for most banking organizations and a
5.00% Tier 1 leverage capital ratio is required for a "well-capitalized"
classification. At March 31, 1998, the Company's Tier 1 leverage capital ratio
was approximately 5.46%. In addition, regulatory authorities have also
implemented risk-based capital guidelines requiring a minimum ratio of Tier 1
capital to risk-weighted assets of 4.00% (6.00% for "well-capitalized") and a
minimum ratio of total capital to risk-weighted assets of 8.00% (10.00% for
"well-capitalized"). At March 31, 1998, the Company's Tier 1 and total
risk-based capital ratios were approximately 10.97% and 11.87%, respectively.
The Company is categorized as "well-capitalized" under the Federal Deposit
Insurance Corporation Improvement Act of 1991 (F.D.I.C.I.A.). The Bank is also
categorized as "well-capitalized" as of March 31, 1998.
Impact of the Year 2000
The year 2000 problem, which is common to most companies, concerns the inability
of information systems, primarily computer software programs, to properly
recognize and process date sensitive information as the year 2000 approaches.
The Company has completed an assessment of the majority of its systems to
identify the systems that could be affected by the year 2000 issue and has
developed an implementation plan to address this issue. The Company's various
systems generally operate on software which is provided and maintained by
outside vendors, many of which are larger, well-established companies that are
well-known and established in the banking industry. At this time, the Company
does not anticipate incurring significant costs related to the year 2000 problem
as currently the Company is highly reliant on the efforts of these outside
vendors. The Company does, however, anticipate an increase in the amount of time
management and staff will devote to closely
25
<PAGE> 139
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
monitor the progress of these vendors, testing applications and developing
operating contingency plans. To the extent that costs are incurred related to
the year 2000 problem, they will be expensed. The Company currently believes it
will be able to modify or replace its affected systems in time to minimize any
detrimental effects on operations. While it is not possible, at present, to give
an accurate estimate of the cost of this work, the Company does not expect that
such costs will be material to the Company's results of operations in one or
more fiscal quarters or years or have a material adverse impact on the long-term
results of operations, liquidity or consolidated financial position of the
Company. However, there can be no assurance that the systems of other companies
on which the Company's systems rely also will be timely converted or that any
such failure to convert by another company would not have an adverse effect on
the Company's systems.
Impact of Inflation
The Consolidated Financial Statements of the Company and related Financial Data
presented herein have been prepared in accordance with generally accepted
accounting principles which generally require the measurement of financial
condition and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The primary impact of inflation on operations of the Company is
reflected in increased operating costs. Unlike most industrial companies, almost
all the assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the price of goods and services.
Proposed Accounting Pronouncements
Segment Information
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." This statement establishes standards for
reporting information about segments in annual and interim financial statements.
SFAS No. 131 introduces a new model for segment reporting, called the
"management approach."
The management approach is based on the way the chief operating decision-maker
organizes segments within a company for making operating decisions and assessing
performance. Reportable segments are based on products and services, geography,
legal structure, management structure - any manner in which management
disaggregates a company. This statement is effective and will be adopted for the
Company's financial statements for the fiscal year ending December 31, 1998 and
requires the restatement of previously reported segment information for all
periods presented.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information required by this Item 3 is included in Item 2 of Part I of this Form
10-Q, entitled "Management's Discussion and Analysis."
26
<PAGE> 140
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
During the quarter ended March 31, 1998 there were no new legal proceedings and
no material developments to items reported in Part I, Item 3 of the Company's
Annual Report for the year ended December 31, 1997 on Form 10-K filed with the
Securities and Exchange Commission on March 25, 1998.
Item 2. Changes in Securities.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
2.1 Plan of Reorganization and Acquisition dated as of
October 15, 1996 between the Company and Abington
Savings Bank incorporated by reference to the
Company's Registration Statement on Form 8-A,
effective January 13, 1997.
3.1 Articles of Organization of the Company incorporated
by reference to the Company's Registration Statement
on Form 8-A, effective January 13, 1997.
3.2 By-Laws of the Company, incorporated by reference to
the Company's Registration Statement on Form 8-A,
effective January 13, 1997.
4.1 Specimen stock certificate for the Company's Common
Stock incorporated by reference to the Company's
Registration Statement on Form 8-A, effective January
13, 1997.
*10.1 (a) Amended and Restated Special Termination
Agreement dated as of January 31, 1997 among the
Company, the Bank and James P. McDonough incorporated
by reference to the Company's Annual Report
27
<PAGE> 141
for the year ended December 31, 1996 on Form 10-K
filed on March 31, 1997.
(b) Amendment to Amended and Restated Special
Termination Agreement, dated as of July 1, 1997 among
the Company, the Bank and James P. McDonough,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
*10.2 (a) Amended and Restated Special Termination
Agreement dated as of January 31, 1997 among the
Company, the Bank and Edward J. Merritt incorporated
by reference to the Company's Annual Report for the
year ended December 31, 1996 on Form 10-K filed on
March 31, 1997.
(b) Amendment to Amended and Restated Special
Termination Agreement, dated as of July 1, 1997 among
the Company, the Bank and Edward J. Merritt,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
*10.3 (a) Amended and Restated Special Termination
Agreement dated as of January 31, 1997 among the
Company, the Bank and Donna L. Thaxter incorporated
by reference to the Company's Annual Report for the
year ended December 31, 1996 on Form 10-K filed on
March 31, 1997.
(b) Amendment to Amended and Restated Special
Termination Agreement, dated as of July 1, 1997 among
the Company, the Bank and Donna L. Thaxter,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
*10.4 (a) Amended and Restated Special Termination
Agreement dated as of January 31, 1997 among the
Company, the Bank and Mario A. Berlinghieri
incorporated by reference to the Company's Annual
Report for the year ended December 31, 1996 on Form
10-K filed on March 31, 1997.
(b) Amendment to Amended and Restated Special
Termination Agreement, dated as of July 1, 1997 among
the Company, the Bank and Mario A Berlinghieri,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
(c) Amendment No. 2 to Amended and Restated Special
Termination Agreement, dated as of April 16, 1998, by
and among the Company, the Bank and Mario A.
Berlinghieri.
*10.5 Abington Bancorp, Inc. Incentive and Nonqualified
Stock Option Plan, as amended and restated to reflect
holding company formation,
28
<PAGE> 142
incorporated by reference to the Company's Annual
Report for the year ended December 31, 1996 on Form
10-K, filed on March 31, 1997.
*10.6 Management Incentive Compensation Program dated March
1997, incorporated by reference to the Company's
quarterly report on Form 10-Q for the second quarter
of 1997, filed on August 13, 1997.
*10.7 Long Term Performance Incentive Plan dated July 1997,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
10.8 (a) Lease for office space located at 538 Bedford
Street, Abington, Massachusetts ("lease"), used for
the Bank's principal and administrative offices dated
January 1, 1996 incorporated by reference to the
Company's Annual Report for the year ended December
31, 1996 on Form 10-K filed on March 31, 1997.
Northeast Terminal Associates, Limited owns the
property. Dennis E. Barry and Joseph L. Barry, Jr.,
who beneficially own more than 5% of the Company's
Common Stock, are the principal beneficial owners of
Northeast Terminal Associates, Limited.
(b) Amendment to Lease dated December 31, 1997,
incorporated by reference to the Company's Annual
Report for the year ended December 31, 1997 on Form
10-K filed on March 25, 1998.
10.9 Dividend reinvestment and Stock Purchase Plan is
incorporated by reference herein to the Company's
Registration Statement on Form S-3, effective January
31, 1997.
*10.10 Abington Bancorp, Inc. 1997 Incentive and
Nonqualified Stock Option Plan, incorporated by
reference herein to Appendix A to the Company's proxy
statement relating to its special meeting in lieu of
annual meeting held on June 17, 1997, filed with the
Commission on April 29, 1997.
*10.11 (a) Special Termination Agreement dated as of July 1,
1997 among the Company, the Bank and Robert M. Lallo,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
(b) Amendment No. 1 to Special Termination Agreement,
dated April 16, 1998, by and among the Company, the
Bank and Robert M. Lallo.
*10.12 Merger Severance Benefit Program dated as of August
28, 1997, incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the third quarter
of 1997, filed on November 15, 1997.
*10.13 Supplemental Executive Retirement Agreement between
the Bank and James P. McDonough dated as of March 26,
1998.
11.1 A statement regarding the computation of earnings per
share is included in Item 1 (Note E to Notes to
Unaudited Consolidated Financial Statements) of this
Report.
29
<PAGE> 143
27.1 Financial Data Schedule, March 31, 1998.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K
during the first quarter of 1998.
- ---------------
* Management Compensatory Plan
30
<PAGE> 144
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ABINGTON BANCORP, INC.
-----------------------
(Company)
Date: May 8, 1998 By /S/James P. McDonough
-----------------------
James P. McDonough
President and Chief
Executive Officer
Date: May 8, 1998 By /S/Robert M. Lallo
---------------------
Robert M. Lallo
Treasurer
(Principal Financial Officer)
31
<PAGE> 145
INDEX TO EXHIBITS
2.1 Plan of Reorganization and Acquisition dated as of
October 15, 1996 between the Company and Abington
Savings Bank incorporated by reference to the
Company's Registration Statement on Form 8-A,
effective January 13, 1997.
3.1 Articles of Organization of the Company incorporated
by reference to the Company's Registration Statement
on Form 8-A, effective January 13, 1997.
3.2 By-Laws of the Company, incorporated by reference to
the Company's Registration Statement on Form 8-A,
effective January 13, 1997.
4.1 Specimen stock certificate for the Company's Common
Stock incorporated by reference to the Company's
Registration Statement on Form 8-A, effective January
31, 1997.
*10.1 (a) Amended and Restated Special Termination
Agreement dated as of January 31, 1997 among the
Company, the Bank and James P. McDonough incorporated
by reference to the Company's Annual Report for the
year ended December 31, 1996 on Form 10-K filed on
March 31, 1997.
(b) Amendment to Amended and Restated Special
Termination Agreement, dated as of July 1, 1997 among
the Company, the Bank and James P. McDonough,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
*10.2 (a) Amended and Restated Special Termination
Agreement dated as of January 31, 1997 among the
Company, the Bank and Edward J. Merritt incorporated
by reference to the Company's Annual Report for the
year ended December 31, 1996 on Form 10-K filed on
March 31, 1997.
(b) Amendment to Amended and Restated Special
Termination Agreement, dated as of July 1, 1997 among
the Company, the Bank and Edward J. Merritt,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
*10.3 (a) Amended and Restated Special Termination
Agreement dated as of January 31, 1997 among the
Company, the Bank and Donna L. Thaxter incorporated
by reference to the Company's Annual Report for the
year ended December 31, 1996 on Form 10-K filed on
March 31, 1997.
32
<PAGE> 146
(b) Amendment to Amended and Restated Special
Termination Agreement, dated as of July 1, 1997 among
the Company, the Bank and Donna L. Thaxter,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
*10.4 (a) Amended and Restated Special Termination
Agreement dated as of January 31, 1997 among the
Company, the Bank and Mario A. Berlinghieri
incorporated by reference to the Company's Annual
Report for the year ended December 31, 1996 on Form
10-K filed on March 31, 1997.
(b) Amendment to Amended and Restated Special
Termination Agreement, dated as of July 1, 1997 among
the Company, the Bank and Mario A. Berlinghieri,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
(c) Amendment No. 2 to Amended and Restated Special
Termination Agreement, dated as of April 16, 1998, by
and among the Company, the Bank and Mario A.
Berlinghieri.
*10.5 Abington Bancorp, Inc. Incentive and Nonqualified
Stock Option Plan, as amended and restated to reflect
holding company formation incorporated by reference
to the Company's Annual Report for the year ended
December 31, 1996 on Form 10-K filed on March 31,
1997.
*10.6 Management Incentive Compensation Program dated March
1997, incorporated by reference to the Company's
quarterly report on Form 10-Q for the second quarter
of 1997, filed on August 13, 1997.
*10.7 Long Term Performance Incentive Plan dated July 1997,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
10.8 (a) Lease for office space located at 538 Bedford
Street, Abington, Massachusetts ("Lease"), used for
the Bank's principal and administrative offices dated
January 1, 1996 incorporated by reference to the
Company's Annual Report for the year ended December
31, 1996 on Form 10-K filed on March 31, 1997.
Northeast Terminal Associates, Limited owns the
property. Dennis E. Barry and Joseph L. Barry, Jr.,
who beneficially own more than 5% of the Company's
Common Stock, are the principal beneficial owners of
Northeast Terminal Associates, Limited.
(b) Amendment to Lease dated December 31, 1997,
incorporated by reference to the Company's Annual
Report for the year ended December 31, 1997 on Form
10-K filed on March 25, 1998.
33
<PAGE> 147
10.9 Dividend reinvestment and Stock Purchase Plan is
incorporated by reference herein to the Company's
Registration Statement on Form S-3, effective January
31, 1997.
*10.10 Abington Bancorp, Inc. 1997 Incentive and
Nonqualified Stock Option Plan, incorporated by
reference herein to Appendix A to the Company's proxy
statement relating to its special meeting in lieu of
annual meeting held on June 17, 1997, filed with the
Commission on April 29, 1997.
*10.11 (a) Special Termination Agreement dated as of July 1,
1997 among the Company, the Bank and Robert M. Lallo,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
(b) Amendment No. 1 to Special Termination Agreement,
dated as of April 16, 1998, by and among the Company,
the Bank and Robert M. Lallo.
*10.12 Merger Severance Benefit Program dated as of August
28, 1997, incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the third quarter
of 1997, filed on November 15, 1997.
*10.13 Supplemental Executive Retirement Agreement between
the Bank and James P. McDonough dated as of March 26,
1998.
11.1 A statement regarding the computation of earnings per
share is included in Item 1 (Note E to Notes to
Unaudited Consolidated Financial Statements) of this
Report.
27.1 Financial Data Schedule, March 31, 1998.
- ------------------------------------------
* Management Compensatory Plan
34
<PAGE> 148
======================================================
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 5
Selected Consolidated Financial
Data................................ 11
Risk Factors.......................... 13
Abington Bancorp, Inc................. 21
Management............................ 23
Abington Bancorp Capital Trust........ 24
Use of Proceeds....................... 26
Market for the Preferred Securities... 26
Accounting Treatment.................. 26
Capitalization........................ 27
Description of the Preferred
Securities.......................... 29
Description of the Junior Subordinated
Debentures.......................... 39
Description of the Guarantee.......... 47
Expense Agreement..................... 49
Relationship Among the Preferred
Securities, the Junior Subordinated
Debentures and the Guarantee........ 49
Certain Federal Income Tax
Consequences........................ 51
ERISA Considerations.................. 54
Underwriting.......................... 55
Legal Matters......................... 56
Experts............................... 56
Incorporation of Certain Documents by
Reference........................... 57
Available Information................. 57
Appendix A -- The Company's 1997
Annual Report to Shareholders
Appendix B -- The Company's Quarterly
Report on Form 10-Q for the quarter
ended March 31, 1998
</TABLE>
------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE PREFERRED SECURITIES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF.
======================================================
======================================================
1,100,000 PREFERRED SECURITIES
ABINGTON BANCORP
CAPITAL TRUST
% CUMULATIVE TRUST
PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER
PREFERRED SECURITY)
GUARANTEED, AS DESCRIBED HEREIN, BY
[LOGO]
ABINGTON BANCORP, INC.
$11,000,000
% JUNIOR SUBORDINATED
DEBENTURES OF
ABINGTON BANCORP, INC.
------------------------
PROSPECTUS
------------------------
, 1998
TUCKER ANTHONY
INCORPORATED
MCCONNELL, BUDD & DOWNES, INC.
======================================================
<PAGE> 149
PART II. INFORMATION NOT IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(1).
COMPANY TO PROVIDE
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- --------
<S> <C>
SEC filing fee(2)........................................... $ 3,732
Nasdaq Listing Fee.......................................... 1,000
NASD Filing Fee............................................. 1,765
Printing, postage and mailing............................... 40,000
Legal fees and expenses..................................... 125,000
Accounting fees and expenses................................ 40,000
Trustees' fees and expenses................................. 11,000
Transfer Agent and Registrar fees........................... 10,000
Blue Sky fees and expenses.................................. 10,000
Miscellaneous............................................... 34,000
--------
Total............................................. $276,497
========
</TABLE>
- ---------------
(1) The amounts set forth above, except for the SEC and NASD fees, are in each
case estimated.
(2) Based upon the sale of 1,265,000 Preferred Securities at $10.00 per
Preferred Security.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Indemnification. The Company is a Massachusetts corporation. Massachusetts
General Laws Chapter 156B, Section 67 provides that a corporation may, subject
to certain limitations, indemnify its directors, officers, employees and other
agents, and persons who serve at its request as directors, officers, employees
or other agents of another organization, or who serve at its request in any
capacity with respect to any employee benefit plan, to the extent specified or
authorized by the corporation's articles of organization, a by-law adopted by
the stockholders, or a vote adopted by the holders of a majority of the shares
of stock entitled to vote on the election of directors.
Section 67 also provides that a corporation may purchase and maintain
insurance against liability incurred by an officer or director in his capacity
as officer or director, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability.
The Company's By-laws provide that directors and officers of the Company
shall, and in the discretion of the Board of Directors, non-officer employees
may, be indemnified by the Company against liabilities, fees and disbursements
arising out of service for or on behalf of the Company. The By-laws provide that
such indemnification shall not be provided if it is determined that the action
giving rise to the liability was not taken in good faith in the reasonable
belief that the action was in the best interests of the Company. The By-laws
provide that the indemnification provision in the By-laws does not limit any
other right to indemnification existing independently of the By-laws. The
By-laws also provide that the right of directors and officers to indemnification
with respect to any claim arising from any action, transaction or fact will not
be impaired by any later amendment of the By-Laws or of the Massachusetts
statute.
Under the By-laws, indemnification may include payment by the Company of
expenses incurred in defending a civil or criminal action or proceeding in
advance of the final disposition of such action or proceeding, upon receipt of
an undertaking by the person indemnified to repay such payment if he shall be
adjudicated to be not entitled to such indemnification under the By-laws, which
undertaking may be accepted without reference to the financial ability of such
person to make repayment.
II-1
<PAGE> 150
The By-laws provide that the Company is authorized to enter into agreements
with its directors and officers providing indemnification procedures different
from those set forth in the By-laws, and to purchase and maintain liability
insurance for itself and any director, officer or employee of the Company.
Limitation of Liability. Massachusetts General Laws Chapter 156B, Section
13 enables a corporation in its original articles of organization or an
amendment thereto to eliminate or limit the personal liability of a director for
monetary damages for violations of the director's fiduciary duty, except (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to Sections
61 and 62 of Chapter 156B (providing for liability of directors for authorizing
illegal distributions and for making loans to directors, officers and certain
shareholders) or (iv) for any transaction from which a director derived an
improper personal benefit. The Company's Articles contain such a limitation of
liability provision.
ITEM 16. EXHIBITS.
The following is a complete list of exhibits filed as part of this
Registration Statement.
<TABLE>
<C> <S>
1.1 Draft form of Underwriting Agreement by and between the
Company as issuer and Tucker Anthony Incorporated and
McConnell, Budd & Downes, Inc., as representatives of the
several Underwriters.
4.1 Form of Indenture of the Company relating to the Junior
Subordinated Debentures.
4.2 Form of Junior Subordinated Debenture.
4.3 Certificate of Trust of Abington Bancorp Capital Trust.
4.4 Form of Amended and Restated Trust Agreement of Abington
Bancorp Capital Trust.
4.5 Form of Preferred Security Certificate for Abington Bancorp
Capital Trust.
4.6 Form of Preferred Securities Guarantee Agreement of the
Company relating to the Preferred Securities.
4.7 Form of Agreement as to Expenses and Liabilities.
*5.1 Opinion of Foley, Hoag & Eliot LLP as to legality of the
Junior Subordinated Debentures and the Guarantee to be
issued by the Company.
*5.2 Opinion of Morris, Nichols, Arsht & Tunnell as to legality
of the Preferred Securities to be issued by Abington Bancorp
Capital Trust.
*8.1 Opinion of Foley, Hoag & Eliot LLP as to certain federal
income tax matters.
12.1 Computation of ratio of earnings to fixed charges (excluding
interest on deposits).
+13.1 Annual Report on Form 10-K of Abington Bancorp, Inc. for the
fiscal year ended December 31, 1997 (the "10-K"), Commission
File No. 0-16018.
+13.2 Quarterly Report on Form 10-Q of Abington Bancorp, Inc. for
the fiscal quarter ended March 31, 1998 , Commission File
No. 0-16018.
+13.3 1997 Annual Report to Shareholders of Abington Bancorp, Inc.
(filed with the Commission as Exhibit 13 to the 10-K).
23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit
5.1).
*23.3 Consent of Morris, Nichols, Arsht & Tunnell (included in
Exhibit 5.2).
24.1 Power of Attorney of certain officers and directors of the
Corporation (located on the signature page hereto).
</TABLE>
II-2
<PAGE> 151
<TABLE>
<C> <S>
25.1 Form T-1 Statement of Eligibility of State Street Bank and
Trust Company to act as trustee under the Indenture.
25.2 Form T-1 Statement of Eligibility of State Street Bank and
Trust Company to act as trustee under the Declaration of
Trust of Abington Bancorp Capital Trust.
25.3 Form T-1 Statement of Eligibility of State Street Bank and
Trust Company under the Guarantee for the benefit of the
holders of Preferred Securities of Abington Bancorp Capital
Trust.
</TABLE>
- ---------------
* To be filed by amendment.
+ Incorporated by reference.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended (the
"Act"), each filing of the Registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in this Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of each undersigned
Registrant pursuant to the foregoing provisions, or otherwise, each Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by each undersigned Registrant of
expenses incurred or paid by a director, officer of controlling person of each
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, each Registrant will, unless in the opinion of its
counsel the matter has been settled by the controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The undersigned Registrant hereby undertakes that: (1) For purposes of
determining any liability under the Act, the information omitted from the form
of prospectus filed as part of this Registration Statement in reliance upon Rule
430A and contained in a form of prospectus filed by the Company pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this Registration Statement as of the time it was declared effective; and (2)
for the purpose of determining any liability under the Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE> 152
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Abington, Massachusetts, on May 11, 1998.
ABINGTON BANCORP, INC.
By: /s/ JAMES P. MCDONOUGH
------------------------------------
President and Chief Executive
Officer
Pursuant to the requirements of Securities Act of 1933, Abington Bancorp
Capital Trust certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Town of Abington, Massachusetts, on May 11, 1998.
ABINGTON BANCORP CAPITAL TRUST
By: /s/ JAMES P. MCDONOUGH
------------------------------------
Administrative Trustee
By: /s/ ROBERT M. LALLO
------------------------------------
Administrative Trustee
By: /s/ LEWIS PARAGONA
------------------------------------
Administrative Trustee
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Abington Bancorp, Inc. hereby severally constitute James P.
McDonough and Robert M. Lallo and each of them singly, our true and lawful
attorneys with full power to them, and each of them singly, to sign for us and
in our names in the capacities indicated below, the Registration Statement filed
herewith and any and all amendments to said Registration Statement, and
generally to do all such things in our names and in our capacities as officers
and directors to enable Abington Bancorp, Inc. to comply with the provisions of
the Securities Act of 1933, and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be signed
by our said attorneys, or any of them, to said Registration Statement and any
and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on May 11, 1998.
II-4
<PAGE> 153
<TABLE>
<S> <C>
/s/ JAMES P. MCDONOUGH /s/ A. STANLEY LITTLEFIELD
- ----------------------------------- -----------------------------------
James P. McDonough, Director, A. Stanley Littlefield, Director
President and Chief Executive
Officer
/s/ ROBERT J. ARMSTRONG /s/ JAY TIMOTHY NOONAN
- ----------------------------------- -----------------------------------
Robert J. Armstrong, Director Jay Timothy Noonan, Director
/s/ BRUCE G. ATWOOD /s/ GORDON N. SANDERSON
- ----------------------------------- -----------------------------------
Bruce G. Atwood, Director Gordon N. Sanderson, Director
/s/ WILLIAM F. BORHEK /s/ JAMES J. SLATTERY
- ----------------------------------- -----------------------------------
William F. Borhek, Director James J. Slattery, Director
/s/ RALPH B. CARVER, JR. /s/ WAYNE P. SMITH
- ----------------------------------- -----------------------------------
Ralph B. Carver, Jr., Director Wayne P. Smith, Director
/s/ JOEL S. GELLER /s/ ROBERT M. LALLO
- ----------------------------------- -----------------------------------
Joel S. Geller, Director Robert M. Lallo, Senior Vice
President,
Treasurer and Chief Financial
Officer
/s/ RODNEY HENRIKSON
- -----------------------------------
Rodney Henrikson, Director
</TABLE>
II-5
<PAGE> 154
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Draft form of Underwriting Agreement by and between the
Company as issuer and Tucker Anthony Incorporated and
McConnell, Budd & Downes, Inc., as representatives of the
several Underwriters.
4.1 Form of Indenture of the Company relating to the Junior
Subordinated Debentures.
4.2 Form of Junior Subordinated Debenture.
4.3 Certificate of Trust of Abington Bancorp Capital Trust.
4.4 Form of Amended and Restated Trust Agreement of Abington
Bancorp Capital Trust.
4.5 Form of Preferred Security Certificate for Abington Bancorp
Capital Trust.
4.6 Form of Preferred Securities Guarantee Agreement of the
Company relating to the Preferred Securities.
4.7 Form of Agreement as to Expenses and Liabilities.
*5.1 Opinion of Foley, Hoag & Eliot LLP as to legality of the
Junior Subordinated Debentures and the Guarantee to be
issued by the Company.
*5.2 Opinion of Morris, Nichols, Arsht & Tunnell as to legality
of the Preferred Securities to be issued by Abington Bancorp
Capital Trust.
*8.1 Opinion of Foley, Hoag & Eliot LLP as to certain federal
income tax matters.
12.1 Computation of ratio of earnings to fixed charges (excluding
interest on deposits).
+13.1 Annual Report on Form 10-K of Abington Bancorp, Inc. for the
fiscal year ended December 31, 1997 (the "10-K"), Commission
File No. 0-16018.
+13.2 Quarterly Report on Form 10-Q of Abington Bancorp, Inc. for
the fiscal quarter ended March 31, 1998, Commission File No.
0-16018.
+13.3 1997 Annual Report to Shareholders of Abington Bancorp, Inc.
(filed with the Commission as Exhibit 13 to the 10-K).
23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit
5.1).
*23.3 Consent of Morris, Nichols, Arsht & Tunnell (included in
Exhibit 5.2).
24.1 Power of Attorney of certain officers and directors of the
Corporation (located on the signature page hereto).
25.1 Form T-1 Statement of Eligibility of State Street Bank and
Trust Company to act as trustee under the Indenture.
25.2 Form T-1 Statement of Eligibility of State Street Bank and
Trust Company to act as trustee under the Declaration of
Trust of Abington Bancorp Capital Trust.
25.3 Form T-1 Statement of Eligibility of State Street Bank and
Trust Company under the Guarantee for the benefit of the
holders of Preferred Securities of Abington Bancorp Capital
Trust.
</TABLE>
- ---------------
* To be filed by amendment.
+ Incorporated by reference.
<PAGE> 1
Exhibit 1.1
1,100,000 PREFERRED SECURITIES
ABINGTON BANCORP CAPITAL TRUST
____% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY)
UNDERWRITING AGREEMENT
Boston, Massachusetts
________ __, 1998
TUCKER ANTHONY INCORPORATED
One Beacon Street
Boston, Massachusetts 02108
McCONNELL, BUDD & DOWNES, INC.
365 South Street
Morristown, New Jersey 07960
Ladies and Gentlemen:
Abington Bancorp, Inc., a Massachusetts corporation (the "Company") and
its financing subsidiary, Abington Bancorp Capital Trust, a Delaware business
trust(the "Trust", and hereinafter together with the Company, the
"Offerors"),confirm their agreement with Tucker Anthony Incorporated ("Tucker
Anthony") and McConnell, Budd & Downes, Inc. ("McConnell, Budd") and each of the
other Underwriters, if any, named in Schedule A hereto(collectively, the
"Underwriters", which term shall also include any Underwriters substituted as
hereinafter provided in Section 11), for whom Tucker Anthony and McConnell, Budd
are acting as representative (in such capacity, Tucker Anthony and McConnell,
Budd are herein collectively called the "Representative"), with respect to the
sale by the Trust and the purchase by the Underwriters, acting severally and not
jointly, of an aggregate of 1,100,000 of the Trust's ___% Cumulative Trust
Preferred Securities, with a liquidation amount of $10 per preferred security
("Preferred Securities"), to be issued under the Trust Agreement (as hereinafter
defined), the terms of which are more fully described in the prospectus (as
hereinafter defined) (the aforementioned 1,100,000 Preferred Securities to be
sold to the Underwriters being referred to herein as the "Firm Preferred
Securities"), and with respect to the grant by the Trust to the Underwriters,
acting severally and not jointly, of the option described in Section 2(b) hereof
to purchase therefrom all or any part of an additional 165,000 Preferred
Securities for the purpose of covering over-allotments, if any. The Firm
Preferred Securities and all or any part of the Preferred Securities subject to
the option described in Section 2(b) hereof (the "Option Preferred Securities")
are hereinafter collectively referred to as the "Designated Preferred
Securities." The words "you" and "your" refer to the Representative of the
Underwriters.
1. REPRESENTATIONS AND WARRANTIES OF THE OFFERORS.
The Offerors jointly and severally represent and warrant to, and agree
with, each of the Underwriters as of the date hereof, and as of the Closing
Date, as defined in Section 2(a) hereof, and the Option Closing Date, as defined
in Section 2(b) hereof, if any, as follows:
(a) A registration statement on Form S-2 (File No. 333-_____) with
respect to the Designated Preferred Securities, the Guarantee (as defined
in Section 2(d) hereof) and $12,650,000 aggregate principal amount of
Debentures (as defined in Section 2(d) hereof), including a prospectus
subject to completion, has been prepared by the Offerors in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and
the
<PAGE> 2
applicable Rules and Regulations (as defined below) of the Securities and
Exchange Commission (the "Commission") and the Trust Indenture Act of 1939,
as amended (the "Trust Indenture Act") and the rules and regulations
thereunder, and has been filed with the Commission; such amendments to such
registration statement, and such amended prospectuses subject to
completion, as may have been required prior to the date hereof have been
similarly prepared and filed with the Commission; and the Offerors will
file such additional amendments to such registration statement, and such
amended prospectuses subject to completion, as may hereafter be required.
Copies of such registration statement and each such amendment, each such
related prospectus subject to completion (collectively, the "Preliminary
Prospectuses" and individually, a "Preliminary Prospectus"), each document
incorporated by reference therein and each exhibit thereto have been
delivered to you. For purposes hereof, "Rules and Regulations" means the
rules and regulations adopted by the Commission under either the Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
applicable. If the registration statement has been declared effective under
the Act by the Commission, the Company will prepare and promptly file with
the Commission, pursuant to subparagraph (1) or (4) of Rule 424(b) of the
Rules and Regulations under the Act or as part of a post-effective
amendment to the registration statement (including a final form of
prospectus), the information omitted from the registration statement
pursuant to Rule 430A(a) of the Rules and Regulations under the Act. If the
registration statement has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file a further amendment
to the registration statement, including a final form of prospectus. The
term "Registration Statement" as hereinafter used in this Agreement shall
mean such registration statement, including financial statements, schedules
and exhibits in the form in which it became or becomes effective
(including, if the Company omitted information from the registration
statement pursuant to Rule 430A(a) of the Rules and Regulations under the
Act, the information deemed to be a part of the registration statement at
the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations under the Act) and, in the event of any amendment thereto after
the effective date of such registration statement, shall also mean (from
and after the effectiveness of such amendment) such registration statement
as so amended, together with any registration statement filed by the
Company pursuant to Rule 462(b) under the Act. The term "Prospectus" as
used in this Agreement shall mean the prospectus relating to the Designated
Preferred Securities as included in such registration statement at the time
it became or becomes effective, except that if any revised prospectus shall
be provided to the Underwriters by the Offerors for use in connection with
the offering of the Designated Preferred Securities that differs from the
Prospectus on file with the Commission at the time the registration
statement became or becomes effective (whether or not such revised
prospectus is required to be filed with the Commission pursuant to Rule
424(b)(3) of the Rules and Regulations under the Act), the term
"Prospectus" shall refer to such revised prospectus from and after the time
it is first provided to the Underwriters for such use, together with the
term sheet or abbreviated term sheet filed with the Commission pursuant to
Rule 424(b)(7) under the Act. Any reference herein to the Registration
Statement, the Prospectus, any amendment or supplement thereto or any
Preliminary Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein, and any reference herein to
the terms "amend," "amendment" or "supplement" with respect to the
Registration Statement or Prospectus shall be deemed to refer to and
include the filing of any document with the Commission deemed to be
incorporated by reference therein.
(b) Neither the Commission nor any state regulatory authority has
<PAGE> 3
issued any order preventing or suspending the use of any Preliminary
Prospectus, at the time of filing thereof, or instituted proceedings for
that purpose, and each such Preliminary Prospectus, at the time of filing
thereof, has conformed in all material respects to the requirements of the
Act and the Rules and Regulations and, at the time of filing thereof, has
not included any untrue statement of a material fact or omitted to state
any material fact necessary to make the statements therein not misleading
and at the time the Registration Statement became or becomes effective and
at all times subsequent thereto up to and including the Closing Date (as
hereinafter defined) and any Option Closing Date (as hereinafter defined),
and during such longer period as the Prospectus may be required to be
delivered in connection with sales by an Underwriter or a dealer, (i) the
Registration Statement and Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and conformed and
will conform in all material respects to the requirements of the Act and
the Rules and Regulations and the Trust Indenture Act (and the rules and
regulations thereunder), and (ii) neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto included or will
include any untrue statement of a material fact or omitted or will omit to
state any material fact required to be stated therein or necessary to make
the statements therein in light of the circumstances under which they were
made not misleading. The documents incorporated by reference in the
Registration Statement, the Prospectus, any amendment or supplement thereto
or any Preliminary Prospectus, when they became or become effective under
the Act or were or are filed with the Commission under the Exchange Act,
conformed or will conform in all material respects with the requirements of
the Act or the Exchange Act, as applicable, and the Rules and Regulations,
and as of the date any such document was or is filed with the Commission
under the Exchange Act such document did not, and on the Closing Date and
on any Option Closing Date will not, omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
(c) (i) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of The Commonwealth of
Massachusetts and is duly registered as a bank holding company under the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). Each of the
subsidiaries of the Company (collectively, the "Subsidiaries" and
individually, a "Subsidiary") has been duly organized and is validly
existing in good standing under the laws of its jurisdiction of
organization. The Company and each of the Subsidiaries are duly qualified
and licensed as foreign corporations and in good standing in each
jurisdiction in which their respective operations requires such
qualification or licensing, except where the failure to be so qualified
would not have a material adverse effect on the condition, financial or
otherwise, or on the business affairs, position, prospects, value,
operation, properties, business or results of operation of the Company and
the Subsidiaries taken as a whole whether or not arising in the ordinary
course of business (a "Material Adverse Effect"). The Company and each of
the Subsidiaries have all requisite power and authority, and have obtained
any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or
regulatory officials and bodies to own or lease their respective properties
and conduct their respective businesses as described in the Prospectus
(collectively, "Government Approvals"), except where the failure to so
obtain any such Government Approval would not have a Material Adverse
Effect; the Company and each of the Subsidiaries are and have been doing
business in compliance with all such Government Approvals, except where the
failure to so comply would not
<PAGE> 4
have a Material Adverse Effect; and neither the Company nor any of the
Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Government Approvals. All of the
outstanding shares of capital stock of each of the Subsidiaries have been
duly authorized and validly issued, are fully paid and non-assessable and
are owned by the Company free and clear of all liens, encumbrances and
security interests, and no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into, or exchange any securities for shares of capital stock of
or ownership interests in any of the Subsidiaries are outstanding. The
Company's only bank subsidiary is Abington Bank and Trust Company (the
"Bank"). The deposit accounts of the Bank are insured by the Bank Insurance
Fund administered by the Federal Deposit Insurance corporation (the "FDIC")
up to the maximum amount provided by law and no proceedings for the
modification, termination or revocation of any such insurance are pending
or threatened.
(ii) The Trust has been duly created and is validly existing as a
statutory business trust in good standing under the Delaware Business Trust
Act with the power and authority (trust and other) to issue and sell its
common securities (the "Common Securities") to the Company pursuant to the
Trust Agreement, to issue and sell the Designated Preferred Securities, to
enter into and perform its obligations under this Agreement and to
consummate the transactions herein contemplated; the Trust has conducted
and will conduct no business other than the transactions contemplated by
this Agreement and described in the Prospectus; the Trust is not a party to
or bound by any agreement or instrument other than this Agreement, the
Trust Agreement and the agreements and instruments contemplated by the
Trust Agreement and described in the Prospectus; the Trust has no
liabilities or obligations other than those arising out of the transactions
contemplated by this Agreement and the Trust Agreement and described in the
Prospectus; the Trust is not a party to or subject to any action, suit or
proceeding of any nature; the Trust is not, and at the Closing Date or any
Option Closing Date will not be, to the knowledge of the Offerors,
classified as an association taxable as a corporation for United States
federal income tax purposes; and the Trust is, and as of the Closing Date
or any Option Closing Date will be, treated as a consolidated subsidiary of
the Company pursuant to generally accepted accounting principles.
(d) (i) The capital stock of the Company and the equity securities of
the Trust, the Debentures and the Guarantee conform to the description
thereof contained in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), and neither Offeror is
a party to or bound by any instrument, agreement or other arrangement
(except as disclosed in the Prospectus) providing for it to issue any
capital stock, rights, warrants, options or other securities, except for
this Agreement. All issued and outstanding shares of capital stock and
equity securities of each Offeror have been duly authorized and validly
issued and are fully paid and non-assessable and were not issued in
violation of any preemptive rights or other rights to subscribe for or
purchase securities.
(ii) (A) The Trust has all requisite power and authority to
issue, sell and deliver the Designated Preferred Securities in
accordance with and upon the terms and conditions set forth in this
Agreement, the Trust Agreement, the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). All corporate and trust action required to be
taken by the Offerors for the authorization, issuance, sale and
<PAGE> 5
delivery of the Designated Preferred Securities in accordance with
such terms and conditions has been validly and sufficiently taken. The
Designated Preferred Securities, when delivered in accordance with
this Agreement, will be duly and validly issued and outstanding, will
be fully paid and nonassessable undivided beneficial interests in the
assets of the Trust, will be entitled to the benefits of the Trust
Agreement, will not be issued in violation of or subject to any
preemptive or similar rights, and will conform in all material
respects to the description thereof in the Registration Statement, the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and the Trust Agreement. None of the
Designated Preferred Securities, immediately prior to delivery, will
be subject to any security interest, lien, mortgage, pledge,
encumbrance, restriction upon voting or transfer, preemptive rights,
claim, equity or other title defect.
(B) The Debentures have been duly and validly authorized,
and, when duly and validly executed, authenticated and issued as
provided in the Indenture and delivered to the Trust pursuant to the
Trust Agreement, will constitute valid and legally binding obligations
of the Company entitled to the benefits of the Indenture and will
conform in all material respects to the description thereof contained
in the Prospectus.
(C) The Guarantee has been duly and validly authorized, and,
when duly and validly executed and delivered to the guarantee trustee
for the benefit of the Trust, will constitute a valid and legally
binding obligation of the Company and will conform in all material
respects to the description thereof contained in the Prospectus.
(D) The Agreement as to Expenses and Liabilities (the
"Expense Agreement") has been duly and validly authorized, and, when
duly and validly executed and delivered to the Company, will
constitute a valid and legally binding obligation of the Company and
will conform in all material respects to the description thereof
contained in the Prospectus.
(e) The audited and unaudited consolidated financial statements of the
Company, together with the notes and schedules thereto, included in the
Registration Statement, each Preliminary Prospectus and the Prospectus
fairly present the financial position and the results of operations,
changes in cash flows and changes in stockholders' equity of the Company at
the respective dates and for the respective periods to which they apply;
and each of such audited consolidated financial statements has been
prepared in conformity with generally accepted accounting principles and
the Rules and Regulations, consistently applied throughout the periods
involved, all adjustments necessary for a fair presentation of results for
such periods have been made and such unaudited consolidated financial
statements have been prepared on a basis substantially consistent with that
of such audited consolidated financial statements. Except as described in
the Prospectus, there has been no change or development involving a
Material Adverse Effect since the date of the consolidated financial
statements included in any of the Preliminary Prospectuses, the Prospectus
and the Registration Statement, and the outstanding debt, the property,
both tangible and intangible, and the business of the Company and each of
the Subsidiaries conform in all material respects to the descriptions
thereof contained in the Registration Statement and the Prospectus. The
summary and selected consolidated financial and statistical data included
in the Registration Statement and the Prospectus present fairly the
information shown therein or incorporated by reference and have been
<PAGE> 6
compiled on a basis consistent with the unaudited and audited consolidated
financial statements included therein. The Company's internal accounting
controls are sufficient to cause the Company to comply with the Foreign
Corrupt Practices Act of 1977, as amended. Neither the Company nor any of
the Subsidiaries has any material contingent obligation which is not
disclosed in the Registration Statement.
(f) Arthur Andersen LLP ("AA"), whose reports are filed with the
Commission as a part of the Registration Statement, are independent
certified public accountants as required by the Act and the Rules and
Regulations.
(g) (i) the Company and each of the Subsidiaries have paid all
federal, state, local and foreign taxes for which they are respectively
liable and which are due and payable, including, but not limited to,
withholding taxes and amounts payable under Chapters 21 through 24 of the
Internal Revenue Code of 1986, as amended, and (ii) none of the Company or
any Subsidiary has any tax deficiency or claims outstanding, assessed or,
to its knowledge, proposed against it.
(h) No transfer tax, stamp duty or other similar tax is payable by or
on behalf of the Underwriters in connection with (i) the issuance by the
Trust of the Designated Preferred Securities, (ii) the purchase by the
Underwriters of the Designated Preferred Securities, or (iii) the
consummation by the Offerors of any of their respective obligations under
this Agreement.
(i) The Offerors and each of the Subsidiaries maintain insurance of
the types and in the amounts which are adequate for their businesses, all
of which insurance is in full force and effect.
(j) Except as disclosed in the Prospectus, there is no action, suit,
proceeding, inquiry, investigation, litigation or governmental proceeding,
domestic or foreign, pending or, to the Offerors' knowledge, threatened
against (or currently existing or previously occurring facts or
circumstances that provide a basis for the same), or involving the
properties or business of the Offerors or any of the Subsidiaries, that (i)
questions the validity of the capital stock or equity securities of the
Offerors or this Agreement or of any action taken or to be taken by the
Offerors pursuant to or in connection with this Agreement, (ii) is required
to be disclosed in the Registration Statement that is not so disclosed (and
such proceedings, if any, as are summarized in the Registration Statement
are accurately summarized in all material respects), or (iii) would have a
Material Adverse Effect.
(k) Each of the Offerors has full legal right, power and authority to
enter into this Agreement and to consummate the transactions provided for
herein and therein; and this Agreement has been duly authorized, executed
and delivered by each of the Offerors. This Agreement, assuming it has been
duly authorized, executed and delivered by the Underwriters, constitutes a
legal, valid and binding agreement of the each of the Offerors enforceable
against each of the Offerors in accordance with its terms. Each of the
Indenture, the Trust Agreement, the Guarantee and the Expense Agreement has
been duly authorized by the Company, and, when executed and delivered by
the Company on the Closing Date, each of said agreements will constitute a
valid and legally binding obligation of the Company and will be enforceable
against the Company in accordance with its terms. Each of the Indenture,
the Trust Agreement and the Guarantee has been duly qualified under the
Trust Indenture Act and will conform to the description thereof contained
in the Prospectus. The execution and delivery of this Agreement by the
<PAGE> 7
Offerors, their performance hereunder, their consummation of the
transactions contemplated herein and the conduct of their business and that
of each of the Subsidiaries as described in the Registration Statement, the
Prospectus and any amendments or supplements thereto does not and will not
conflict with in any material respect or result in any breach or violation
of any of the material terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction on
equity of any kind whatsoever upon, any property or assets (tangible or
intangible) of either Offeror or any of the Subsidiaries, pursuant to the
terms of (i) the corporate charter, operating agreement or by-laws of the
Company or any of the Subsidiaries or the Trust Agreement, the Guarantee or
the Indenture, (ii) any license, contract, indenture, mortgage, deed of
trust, voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which either Offeror or
any of the Subsidiaries is a party or by which any of them is or may be
bound or to which any of their respective properties or assets (tangible or
intangible) is or may be subject or (iii) any statute, judgment, decree,
order, rule or regulation applicable to either Offeror or any of the
Subsidiaries of any arbitrator, court, regulatory body or administrative
agency or other governmental agency or body, domestic or foreign, having
jurisdiction over either Offeror or any of the Subsidiaries or any of their
respective activities or properties.
(l) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic
or foreign, is required for the issuance of the Designated Preferred
Securities pursuant to the Prospectus and the Registration Statement, or
the performance of this Agreement, the Trust Agreement, the Guarantee or
the Indenture and the transactions contemplated thereby, except such as
have been or may be obtained under the Act, the Exchange Act or the Rules
and Regulations or may be required under state securities or Blue Sky laws
in connection with the Underwriters' purchase and distribution of the
Designated Preferred Securities.
(m) All executed agreements which are filed as exhibits to the
Registration Statement to which either Offeror or any of the Subsidiaries
is a party or by which any of them may be bound or to which any of their
respective assets, properties or businesses may be subject have been duly
and validly authorized, executed and delivered by such Offeror or such
Subsidiaries, and, assuming due authorization, execution and delivery by
the other parties thereto, constitute the legal, valid and binding
agreements of such Offeror and such Subsidiaries enforceable against such
Offeror and such Subsidiaries in accordance with their respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable
law). The descriptions in the Registration Statement of contracts and other
documents are accurate in all material respects and fairly present the
information required to be shown with respect thereto by Form S-2, and
there are no contracts or other documents that are required by the Act to
be described in the Registration Statement or filed as exhibits to the
Registration Statements that are not described or filed as required, and
the exhibits that have been filed are complete and correct copies of the
documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may
<PAGE> 8
otherwise be indicated or contemplated herein or therein, neither Offeror
nor any of the Subsidiaries has (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money, (ii)
entered into any transaction which could reasonably be expected to have a
Material Adverse Effect or (iii) declared or paid any dividend or made any
other distribution on or in respect of its capital stock or equity
securities.
(o) Except as disclosed in the Registration Statement, (i) neither of
the Offerors is in violation of its corporate charter, bylaws or other
governing documents (including without limitation the Trust Agreement), and
(ii) no material default exists in the due performance and observance of
any term, covenant or condition of any license, contract, indenture,
mortgage, installment sale agreement, lease, deed of trust, voting trust
agreement, stockholders agreement, note, loan or credit agreement or any
other agreement or instrument evidencing an obligation for borrowed money,
or any other agreement or instrument to which either Offeror or any of the
Subsidiaries is a party or by which either Offeror or any of the
Subsidiaries may be bound or to which any of the property or assets
(tangible or intangible) of either Offeror or any of the Subsidiaries is
subject or affected.
(p) The Offerors and each of the Subsidiaries have a generally
satisfactory employer-employee relationship with their respective employees
and are in compliance with all federal, state, local, and, where
applicable, foreign, laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages and
hours, except where the failure to so comply would not have a Material
Adverse Effect. To the Offerors' knowledge, there are no pending
investigations involving the Offerors or any of the Subsidiaries by the
United States Department of Labor or any other governmental agency
responsible for the enforcement of such federal, state, local or foreign
laws and regulations. To the Offerors' knowledge, there is no unfair labor
practice charge or complaint against either Offeror or any of the
Subsidiaries pending before the National Labor Relations Board or any
strike, picketing, boycott, dispute, slowdown or stoppage pending or
threatened against or involving either Offeror or any of the Subsidiaries,
and no such strike, picketing, boycott, dispute, slowdown or stoppage has
ever occurred. No representation question exists respecting the employees
of either Offeror or any of the Subsidiaries, and no collective bargaining
agreement or modification thereof is currently being negotiated by either
Offeror or any of the Subsidiaries. There are no expired or existing
collective bargaining agreements of either Offeror or any of the
Subsidiaries.
(q) Neither Offeror nor any of the Subsidiaries has incurred any
liability arising under or as a result of any breach of the provisions of
the Act.
(r) Except as disclosed in the Prospectus, neither Offeror nor any of
the Subsidiaries maintains, sponsors or contributes to any program or
arrangement that is an "employee pension benefit plan", an "employee
welfare benefit plan", or a "multiemployer plan" (collectively, the "ERISA
Plans") as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). With respect to any ERISA Plan that an Offeror or any of
the Subsidiaries, now or at any time previously, maintains or contributes
to, all applicable federal laws and regulations have been complied with,
except for such instances of noncompliance which, either singly or in the
aggregate, would not have a Material Adverse Effect. Neither Offeror nor
<PAGE> 9
any of the Subsidiaries has ever completely or partially withdrawn from a
"multiemployer plan."
(s) The Offerors and the Subsidiaries have complied in all material
respects with all federal, state and local statutes, regulations,
ordinances and rules applicable to the ownership and operation of their
properties or the conduct of their businesses as described in and
contemplated by the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) and
as currently being conducted.
(t) Each Offeror maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(u) The Offerors have not distributed and will not distribute prior to
the Closing Date any prospectus in connection with the Offering, other than
a Preliminary Prospectus, the Prospectus, the Registration Statement and
the other materials permitted by the 1933 Act and the 1933 Act Regulations
and reviewed by the Underwriters.
(v) No holders of any equity securities of the Offerors or of any
options, warrants or other convertible or exchangeable securities of the
Offerors exercisable for or convertible or exchangeable for equity
securities of the Offerors have the right (except as may have been waived),
to include any securities issued by the Company in the Registration
Statement or any registration statement to be filed by the Company within
180 days of the date hereof or to require the Company or the Trust to file
a registration statement under the Act during such 180 day period.
(w) Neither Offeror has taken or will take, directly or indirectly
(except for any action that may be taken by the Underwriters), any action
designed to or which has constituted or which might reasonably be expected
to cause or result in, under the Exchange Act or otherwise, stabilization
or manipulation of the price of any security of either Offeror to
facilitate the sale or resale of the Designated Preferred Securities or
otherwise.
(x) Except to the extent disclosed in the Prospectus, (i) the Offerors
and each of the Subsidiaries own or possess, or have a license or other
right to use, the patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
technology, trademarks, service marks and trade names, together with all
applications for any of the foregoing, currently used or held for use by
them in connection with their respective businesses, except where the
failure to own or possess, alone or in aggregate, would not have a Material
Adverse Effect on the Offerors, (ii) neither the Offerors nor any of the
Subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to any of the foregoing which has
not been finally resolved and (iii) except as set forth in the Registration
Statement, neither the Offerors nor any of the Subsidiaries is obligated or
under any liability whatsoever to make any
<PAGE> 10
material payments by way of royalties, fees or otherwise to any owner or
licensee of, or other claimant to, any patent, patent right, license,
invention, trademark, service mark, trade name, copyright, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), technology
or other intangible asset, with respect to the use thereof or in connection
with the conduct of its business or otherwise.
(y) The Offerors and each of the Subsidiaries have good and marketable
title to, or valid and enforceable leasehold estates in, all items of real
and personal property stated in the Prospectus (including the financial
statements included or incorporated by reference therein) to be owned or
leased by them, free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions on equity of any
kind whatsoever, other than (i) those referred to in the Prospectus
(including such financial statements), (ii) liens for taxes not yet due and
payable and (iii) mechanics, materialmen, warehouse and other statutory
liens arising in the ordinary course of business which, either individually
or in the aggregate, do not have a Material Adverse Effect.
(z) Except as described in the Prospectus under "Underwriting" and on
the cover page thereof, there are no claims, payments, issuances,
arrangements or understandings for services in the nature of a finder's or
origination fee with respect to the sale of the Designated Preferred
Securities hereunder or any other arrangements, agreements, understandings,
payments or issuance with respect to the Offerors or any of the
Subsidiaries or any of their respective officers, directors, employees or
affiliates that may affect the Underwriters' compensation, as determined by
the National Association of Securities Dealers, Inc. ("NASD").
(aa) The Preferred Securities have been approved for listing on the
Nasdaq National Market System (the "NASDAQ-NM") under the symbol "ABBKP"
subject to official notice of issuance.
(ab) The Company is not an "investment company" or an "affiliated
person" or "promoter" of, or "principal Underwriters" for, an "investment
company", as such terms are defined in the Investment Company Act of 1940,
as amended (the "1940 Act"), or subject to regulation under the 1940 Act.
(ac) Any certificate signed by any officer of either Offeror and
delivered to the Underwriters or to the Underwriters' Counsel (as
hereinafter defined) shall be deemed a representation and warranty by such
Offeror to the Underwriters as to the matters covered thereby.
(ad) There are no contractual encumbrances or restrictions or material
legal restrictions on the ability of any of the Subsidiaries (i) to pay
dividends or make any other distributions on its capital stock or to pay
any indebtedness owed to the Offerors, (ii) to make any loans or advances
to, or investments in, the Offerors or (iii) to transfer any of its
property or assets to the Offerors.
2. PURCHASE, SALE AND DELIVERY OF THE DESIGNATED PREFERRED SECURITIES;
DESCRIPTION OF DESIGNATED PREFERRED SECURITIES.
(a) On the basis of the representations, warranties and agreements
herein contained, and subject to the terms and conditions herein set forth,
the Offerors hereby agree that the Trust shall issue and sell the Firm
Preferred Securities to the several Underwriters, and each Underwriter,
<PAGE> 11
severally and not jointly, agrees to purchase that number of Firm Preferred
Securities set forth in Schedule A opposite its name plus any additional
number of Firm Preferred Securities that such Underwriter may become
obligated purchase pursuant to the provisions of Section 11 hereof. The
time and date of payment for and delivery of the Firm Preferred Securities
is herein called the "Closing Date." Because the proceeds from the sale of
the Firm Preferred Securities will be used to purchase from the Company its
Subordinated Debentures (as described in the Prospectus), the Company shall
pay to the Underwriters a commission of $_____ per Firm Preferred Security
purchased (the "Firm Preferred Securities Commission").
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained and upon not less than two
business days' notice from the Representative of the Underwriters, for a
period of thirty days from the effective date of this Agreement, the Trust
grants to the Underwriters an option to purchase up to 150,000 Option
Preferred Securities. Such option is granted solely for the purpose of
covering over-allotments in the sale of Firm Preferred Securities and is
exercisable by written notice to the Trust within 30 days after the Closing
Date. Option Preferred Securities shall be purchased severally for the
account of the Underwriters in proportion to the number of Firm Preferred
Securities set forth opposite the name of such Underwriters in Schedule A
hereto. The time and date of delivery of any of the Option Preferred
Securities is herein called the "Option Closing Date". Because the proceeds
from the sale of the Option Preferred Securities will be used to purchase
from the Company its Subordinated Debentures (as described in the
Prospectus), the Company shall pay to the Underwriters a commission of
$_____ per Option Preferred Security purchased (the "Option Preferred
Securities Commission"). The respective purchase obligations of each
Underwriter with respect to the Option Preferred Securities may be adjusted
by the Representative so that no Underwriter shall be obligated to purchase
Option Preferred Securities other than in 100 unit increments. The price of
both the Firm Preferred Securities and any Option Preferred Securities
shall be $10 per Preferred Security.
(c) Payment of the purchase price and Firm Preferred Securities
Commission and Option Preferred Securities Commission for, and delivery of
certificates for, the Firm Preferred Securities and the Option Preferred
Securities shall be made on each of the Closing Date and the Option Closing
Date, respectively, by wire transfer of immediately available funds,
payable to the order of the Trust, at the offices of Tucker Anthony at One
Beacon Street, Boston, Massachusetts, or at such other place as shall be
agreed upon by the Representative and the Offerors or, if mutually agreed
to by the Representative and the Offerors, by wire transfer, upon delivery
of certificates (in form and substance satisfactory to the Representative)
representing such securities to the Representative. Delivery and payment
for the Firm Preferred Securities shall be made at 10:00 a.m. (Eastern
Time) on the third business day following the public offering, or at such
other time and date as shall be agreed upon by the Representative and the
Trust. In the event that any or all of the Option Preferred Securities are
purchased by the Underwriters, the date and time at which certificates for
Option Preferred Securities are to be delivered shall be determined by the
Representative and the Trust but shall not be earlier than three nor later
than ten full business days after the exercise of such option, nor in any
event prior to the Closing Date. Certificates for the Firm Preferred
Securities and the Option Preferred Securities, if any, shall be in
definitive, fully registered form, shall bear no restrictive legends and
shall be in such denominations and registered in such names as the
Representative may request in writing at least two (2) business days prior
<PAGE> 12
to the Closing Date or the Option Closing Date, as applicable. The
certificates for the Firm Preferred Securities and the Option Preferred
Securities, if any, shall be made available to the Representative at such
office or such other place as the Representative may designate for
inspection and packaging not later than 9:30 a.m. (Eastern Time) on the
last business day prior to the Closing Date or the Option Closing Date, as
applicable.
(d) The Offerors propose that the Trust issue the Designated Preferred
Securities pursuant to an Amended and Restated Trust Agreement among State
Street Bank and Trust Company, as Property Trustee, Wilmington Trust
Company, as Delaware Trustee, the Administrative Trustees named therein
(collectively, the "Trustees"), and the Company, in substantially the form
heretofore delivered to the Underwriters, said Agreement being hereinafter
referred to as the "Trust Agreement." In connection with the issuance of
the Designated Preferred Securities, the Company proposes (i) to issue its
Subordinated Debentures (the "Debentures") pursuant to an Indenture, dated
as of ___________, 1998, between the Company and State Street Bank and
Trust Company, as debenture trustee (the "Indenture") and (ii) to guarantee
certain payments on the Designated Preferred Securities pursuant to a
Guarantee Agreement between the Company and State Street Bank and Trust
Company, as guarantee trustee (the "Guarantee"), to the extent described
therein.
3. PUBLIC OFFERING OF THE DESIGNATED PREFERRED SECURITIES.
As soon after the Registration Statement becomes effective as the
Underwriters deem advisable, the Underwriters shall make a public offering of
the Designated Preferred Securities at the price and upon the other terms set
forth in the Prospectus. The Underwriters may from time to time thereafter
reduce the public offering price and change the other selling terms, provided
the proceeds to the Trust shall not be reduced as a result of such reduction or
change. Because the NASD is expected to view the Preferred Securities as
interests in a direct participation program, the offering of the Preferred
Securities is being made in compliance with the applicable provisions of Rule
2810 of the NASD's Conduct Rules.
The Underwriters may reserve and sell such of the Designated Preferred
Securities purchased by the Underwriters as the Underwriters may elect to
dealers chosen by them (the "Selected Dealers") at the public offering price set
forth in the Prospectus less the applicable Selected Dealers' concessions set
forth therein, for re-offering by Selected Dealers to the public at the public
offering price. The Underwriters may allow, and Selected Dealers may re-allow, a
concession set forth in the Prospectus to certain other brokers and dealers.
4. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
The Offerors jointly and severally agree with each of the Underwriters as
follows:
(a) The Offerors will use their best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date
that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; they will notify the
Representative, promptly after they shall receive notice thereof, of the
time when the Registration Statement or any subsequent amendment to the
Registration Statement has become effective or any supplement to the
Prospectus has been filed; if the Offerors omitted information from the
Registration Statement at the time it was originally declared effective in
reliance upon Rule 430A(a), the Offerors will provide evidence satisfactory
<PAGE> 13
to the Representative that the Prospectus contains such information and has
been filed, within the time period prescribed, with the Commission pursuant
to subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations
under the Act or as part of a post-effective amendment to such Registration
Statement as originally declared effective which is declared effective by
the Commission; if for any reason the filing of the final form of
Prospectus is required under Rule 424(b)(3) of the Rules and Regulations
under the Act, they will provide evidence satisfactory to the
Representative that the Prospectus contains such information and has been
filed with the Commission within the time period prescribed; they will
notify the Representative promptly of any request by the Commission for the
amending or supplementing of the Registration Statement or the Prospectus
or for additional information; promptly upon the Representative's request,
they will prepare and file with the Commission any amendments or
supplements to the Registration Statement or Prospectus which, in the
opinion of counsel for the Underwriters ("Underwriters' Counsel"), may be
necessary or advisable so as to comply with all applicable laws and
regulations (including, without limitation, Section 11 under the Act and
Rule 10b-5 under the Exchange Act) in connection with the distribution of
the Designated Preferred Securities by the Underwriters; they will promptly
prepare and file with the Commission, and promptly notify the
Representative of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Designated Preferred Securities is required to be delivered under the Act,
any event shall have occurred as a result of which the Prospectus or any
other prospectus relating to the Designated Preferred Securities as then in
effect would include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading; in case
any Underwriter is required so as to comply with all applicable laws and
regulations (including, without limitation, Section 11 under the Act and
Rule 10b-5 under the Exchange Act) to deliver a prospectus nine months or
more after the effective date of the Registration Statement in connection
with the sale of the Designated Preferred Securities, they will prepare
promptly upon request, but at the expense of the Underwriters, such
amendment or amendments to the Registration Statement and such prospectus
or prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act; they will file no amendment or
supplement to the Registration Statement or Prospectus (other than any
document required to be filed under the Exchange Act that upon filing is
deemed incorporated therein by reference) which shall not previously have
been submitted to the Representative a reasonable time prior to the
proposed filing thereof or to which you shall reasonably object in writing
or which is not in compliance with the Act and the Rules and Regulations
under the Act and until the distribution of the Designated Preferred
Securities pursuant to the Prospectus has been completed, the Offerors will
furnish to the Representative at or prior to the filing thereof a copy of
any document that upon filing is deemed to be incorporated by reference in
the Registration Statement or Prospectus.
(b) The Offerors will advise the Representative, promptly after they
shall receive notice or obtain knowledge thereof, of the issuance of any
stop order by the Commission suspending the effectiveness of the
Registration Statement or of the initiation or threat of any proceeding for
that purpose; and they will promptly use their best efforts to prevent the
issuance of any stop order or to obtain their withdrawal at the earliest
possible moment if such stop order should be issued.
(c) The Offerors will use their best efforts to qualify the
<PAGE> 14
Designated Preferred Securities for offering and sale under the securities
laws of such jurisdictions as the Representative may designate and to
continue such qualifications in effect for so long as may be required for
the purposes of the distribution of the Designated Preferred Securities,
except that either Offeror shall not be required in connection therewith or
as a condition thereof to qualify as a foreign corporation or to execute a
general consent to service of process in any jurisdiction. In each
jurisdiction in which the Designated Preferred Securities shall have been
qualified as above provided, the Offerors will make and file such
statements and reports in each year as are or may be reasonably required by
the laws of such jurisdiction.
(d) The Offerors will furnish to the Representative, as soon as
available, copies of the Registration Statement (as filed in EDGAR format,
including exhibits, with the commission's confirmation of filing), each
Preliminary Prospectus, the Prospectus and any amendment or supplements to
such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Act, all in such quantities as you may from time to
time reasonably request.
(e) The Offerors will make generally available to their
securityholders as soon as practicable, but in any event not later than the
45th day following the end of the fiscal quarter first occurring after the
first anniversary of the effective date of the Registration Statement, an
earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and
covering a twelve-month period beginning after the effective date of the
Registration Statement.
(f) For five years from the date hereof, the Offerors shall furnish to
the Representative copies of all reports and communications (financial or
otherwise) furnished by the Offerors to the holders of the Designated
Preferred Securities as a class, copies of all reports and financial
statements filed with or furnished to the Commission or with any national
securities exchange or the NASDAQ-NM and such other documents, reports and
information concerning the business and financial conditions of the
Offerors as the Representative may reasonably request. During such five
year period the Offerors' financial statements shall be on a consolidated
basis to the extent that the accounts of the Offerors and the Subsidiaries
are consolidated, and shall be accompanied by similar financial statements
for any Subsidiary which is not so consolidated.
(g) The Offerors will apply the net proceeds from the sale of the
Designated Preferred Securities being sold by it in the manner set forth
under the caption "Use of Proceeds" in the Prospectus.
(h) The Offerors will maintain a transfer agent and a registrar (which
may be the same entity as the transfer agent) for the Preferred Securities.
(i) If at any time during the 90-day period after the Registration
Statement becomes effective, any publication or event relating to or
affecting either Offeror shall occur as a result of which in your opinion
the market price of the Preferred Securities has been or is likely to be
materially affected (regardless of whether such publication or event
necessitates a supplement to or amendment of the Prospectus), the Offerors
will, after written notice from the Representative advising the Offerors to
the effect set forth above, forthwith prepare, consult with the
Representative concerning the substance of and disseminate a press release
<PAGE> 15
or other public statement, reasonably satisfactory to the Representative,
responding to or commenting on such publication or event, consistent with
past practice.
(j) For a period ending 180 days from the date of the Prospectus, the
Offerors will not, without your prior written consent, directly or
indirectly, offer for sale, sell or agree to sell or otherwise dispose of
any Preferred Securities other than pursuant to this Agreement, any other
beneficial interests in the assets of the Trust or any securities of the
Trust or the Company that are substantially similar to the Designated
Preferred Securities or the Debentures, including any guarantee of such
beneficial interests or substantially similar securities, or securities
convertible into or exchangeable for or that represent the right to receive
any such beneficial interest or substantially similar securities.
5. PAYMENT OF EXPENSES.
(a) The Company hereby agrees to pay on each of the Closing Date and
the Option Closing Date (to the extent not paid on the Closing Date) all
expenses and fees (other than fees of Underwriters' Counsel, except as
provided in (iii), (v) and (vii) and Section 5(b) below) incident to the
performance of the obligations of the Offerors under this Agreement,
including, without limitation, (i) the fees and expenses of accountants and
counsel for the Offerors; (ii) all costs and expenses incurred in
connection with the preparation, duplication, printing, filing (including
the filing fees of the Commission), mailing (including postage with respect
thereto) and delivery of the Registration Statement, the Preliminary
Prospectuses and the Prospectus and any amendments and supplements thereto,
including the cost of all copies thereof supplied to the Representative in
quantities as hereinabove stated, (iii) all costs and expenses incurred in
connection with the printing, mailing and delivery of this Agreement, the
Selected Dealer Agreements, the Agreement Among Underwriters, Underwriters'
Questionnaires, Underwriters' Powers of Attorney and related documents,
including the cost of all copies thereof supplied to the Underwriters in
quantities as hereinabove stated, (iv) the printing, engraving, issuance
and delivery of the Designated Preferred Securities, including any transfer
or other taxes payable thereon, (v) the qualification of the Designated
Preferred Securities under state or foreign securities or Blue Sky laws,
including the costs of printing and mailing a Blue Sky Memorandum and any
supplements or amendments thereto and disbursements and fees of
Underwriters' Counsel, in connection therewith, (vi) fees and expenses of
the Trust's transfer agent, (vii) fees and expenses incurred in connection
with the review by the NASD of certain of the matters set forth in this
Agreement, and (viii) the fees and expenses incurred in connection with the
listing of the Designated Preferred Securities on the NASDAQ-NM and any
other exchange.
(b) In connection with the Offering, the Offerors agree to reimburse
the Underwriters up to a limit of $75,000 for their out of pocket expenses
("Reimbursable Expenses"), including: (i) their out-of-pocket expenses in
connection with the Registration Statement and related documentation; (ii)
the cost of advertising the Offering; (iii) the Underwriters' travel and
promotional expenses and (iv) the fees and expenses of the underwriters'
counsel, other than as provided in Section 5(a). To the extent the
Reimbursable Expenses exceed the $75,000 limit, the Underwriters will bear
their own out-of-pocket expenses.
(c) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 6, Section 10(b) or Section 12,
or if the Offerors shall terminate this Agreement under Section 10(a),
<PAGE> 16
unless the basis upon which the Representative terminates this Agreement
results from the default or omission of any Underwriter, the Company shall
reimburse and indemnify the Underwriters for (i) all of their reasonable
out-of-pocket expenses up to $75,000, including the fees and disbursements
of Underwriters' Counsel, plus (ii) the Blue Sky fees and expenses
identified in Section 5(a)(v) above.
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS.
The obligations of the Underwriters hereunder shall be subject to the
continuing accuracy of the representations and warranties of the Offerors herein
as of the date hereof and as of the Closing Date and the Option Closing Date, if
any, as if they had been made on and as of the Closing Date or the Option
Closing Date, as the case may be; the accuracy on and as of the Closing Date or
Option Closing Date, if any, of the statements of officers of the Offerors made
pursuant to the provisions hereof; and the performance by the Offerors on and as
of the Closing Date and the Option Closing Date, if any, of their respective
covenants and obligations hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 p.m., Eastern Time, on the date of this Agreement or such later
date and time as shall be consented to in writing by the Representative,
and, at the Closing Date and the Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or
shall be pending or contemplated by the Commission and any request on the
part of the Commission for additional information shall have been complied
with to the satisfaction of Underwriters' Counsel. If the Offerors have
elected to rely upon Rule 430A of the Rules and Regulations under the Act,
the price of the Designated Preferred Securities and any other information
previously omitted from the effective Registration Statement pursuant to
such Rule 430A shall have been transmitted to the Commission for filing
pursuant to Rule 424(b) of the Rules and Regulations under the Act within
the prescribed time period, and, prior to the Closing Date, the Offerors
shall have provided evidence satisfactory to the Representative of such
timely filing, or a post-effective amendment providing such information
shall have been promptly filed and declared effective in accordance with
the requirements of Rule 430A of the Rules and Regulations under the Act.
(b) The Representative shall not have advised the Offerors that the
Registration Statement, or any amendment thereto, contains an untrue
statement of fact that, in the Representative's opinion or in the opinion
of Underwriters' Counsel, is material, or omits to state a fact that, in
the Representative's opinion or in the opinion of Underwriters' Counsel, is
material and is required to be stated therein or is necessary to make the
statements therein not misleading, or that the Prospectus, or any
supplement thereto, contains an untrue statement of fact that, in the
Representative's opinion or in the opinion of Underwriters' Counsel, is
material, or omits to state a fact that, in the Representative's opinion or
in the opinion of Underwriters' Counsel, is material and is required to be
stated therein or is necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(c) On the Closing Date and the Option Closing Date, if any, the
Representative shall have received from Underwriters' Counsel the favorable
opinion to the effect that:
(i) the Preferred Securities conform in all material respects to
the description thereof contained in the Prospectus;
<PAGE> 17
(ii) the Registration Statement is effective under the Act, and
if applicable, the filing of all pricing and other
information has been timely made in the appropriate form
under Rule 430A of the Rules and Regulations, and, to such
counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued,
and no proceedings for that purpose have been instituted or
threatened by the Commission. Such counsel shall state that
such counsel has participated in conferences with officers
and other representatives of the Company, counsel for the
Company, representatives of the independent certified public
accountants for the Company and the Representative, at which
conferences the contents of the Registration Statement and
the Prospectus and related matters were discussed and,
although such counsel is not passing upon and does not
assume any responsibility for, nor has such counsel
independently verified, the accuracy, completeness or
fairness of the statements contained in the Registration
Statement and Prospectus (except as to matters referred to
in subparagraph (i) above of this Section 6(c)), no facts
have come to the attention of such counsel (relying as to
materiality to a large extent upon the opinions of officers
and other representatives of the Company) that lead them to
believe that either the Registration Statement or any
amendment thereto, at the time such Registration Statement
or amendment became effective or any Preliminary Prospectus
(other than information omitted pursuant to Rule 430A) or
the Prospectus or any amendment or supplement thereto as of
the date of such opinion contained or contains any untrue
statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading (it being
understood that such counsel need express no view with
respect to the financial statements and schedules and other
financial and statistical data included in any Preliminary
Prospectus, the Registration Statement (including any
exhibit thereto) or the Prospectus or any amendment or
supplement thereto); and
(iii) each of the Preliminary Prospectuses, the Registration
Statement and the Prospectus and any amendments or
supplements thereto (other than the financial statements and
schedules, related notes and other financial and statistical
data included therein, as to which no opinion need be
rendered) comply as to form in all material respects with
the requirements of the Act and the Rules and Regulations.
The opinion of Underwriters' Counsel to be dated the Option Closing Date,
if any, may confirm as of the Option Closing Date the statements made by
such counsel in their opinion delivered on the Closing Date.
(d) (1) On the Closing Date and the Option Closing Date, if any, the
Underwriters shall have received the favorable opinion of Foley, Hoag &
Eliot LLP, counsel to the Offerors, dated the Closing Date and the Option
Closing Date, if any, addressed to the Underwriters and in form and
substance reasonably satisfactory to Underwriters' Counsel,
to the effect that:
<PAGE> 18
(i) (A) the Company and each of the Subsidiaries are duly
organized, validly existing and in good standing under the
laws of their respective jurisdictions of organization, (B)
the Company is duly registered as a bank holding company
under the BHC Act, and (C) the Company is duly qualified as
a foreign corporation and in good standing in listed
jurisdictions; all of the outstanding shares of capital
stock of each of the Subsidiaries have been duly authorized
and validly issued and are fully-paid and non-assessable and
are owned of record by the Company; the outstanding shares
of capital stock of the Subsidiaries are owned by the
Company free and clear of all liens, encumbrances and
security interests and, to such counsel's knowledge, no
options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any
obligations into, or exchange any securities for, any shares
of capital stock of or ownership interests in any of the
Subsidiaries are outstanding;
(ii) the Company and each of the Subsidiaries have the corporate
power to own, lease and operate their respective properties
and to conduct their respective businesses as described in
the Prospectus;
(iii) The capital stock, Debentures and Guarantee of the Company
and the equity securities of the Trust conform to the
description thereof contained in the Prospectus in all
material respects. The capital stock of the Company
authorized and issued as of December 31, 1997 is as set
forth under the caption "Capitalization" in the Prospectus,
has been duly authorized and validly issued, and is fully
paid and nonassessable. To such counsel's knowledge, there
are no outstanding rights, options or warrants to purchase,
no other outstanding securities convertible into or
exchangeable for, and no commitments, plans or arrangements
to issue, any shares of capital stock of the Company or
equity securities of the Trust, except as described in the
Prospectus. To such counsel's knowledge, the Firm Preferred
Securities and the Option Preferred Securities are not and
will not be subject to any preemptive rights under the
Massachusetts Business Corporation Law or similar statutory
rights. The issuance, sale and delivery of the Designated
Preferred Securities and Debentures in accordance with the
terms and conditions of this Agreement and the Indenture
have been duly authorized by all necessary actions of the
Offerors. All of the Designated Preferred Securities have
been duly and validly authorized and, when delivered in
accordance with this Agreement will be duly and validly
issued, fully paid and nonassessable, and will conform in
all material respects to the description thereof in the
Registration Statement, the Prospectus and the Trust
Agreement; the certificates representing the Designated
Preferred Securities are in due and proper form; and the
Designated Preferred Securities have been approved for
quotation on NASDAQ-NMS subject to official notice of
issuance. There are no preemptive or other rights to
subscribe for or to purchase, and no restrictions upon the
voting or transfer of, any shares of capital stock or equity
securities of the Offerors or the Subsidiaries pursuant to
<PAGE> 19
the corporate charter, by-laws or other governing documents
(including, without limitation, the Trust Agreement) of the
Offerors or the Subsidiaries, or, to the best of such
counsel's knowledge, any agreement or other instrument to
which either Offeror or any of the Subsidiaries is a party
or by which either Offeror or any of the Subsidiaries may be
bound. To the best of such counsel's knowledge, holders of
securities of the Offerors either do not have any right
that, if exercised, would require the Offerors to cause such
securities to be included in the Registration Statement or
any registration statement to be filed by the Company within
180 days of the date hereof or to require the Company to
file a registration statement under the Act during such 180
day period, or have waived such right.
(iv) the Registration Statement is effective under the Act, and,
if applicable, the filing of all pricing and other
information has been timely made in the appropriate form
under Rule 430A of the Rules and Regulations under the Act,
and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement
has been issued, and no proceedings for that purpose have
been instituted or, to such counsel's knowledge, threatened
by the Commission;
(v) the Registration Statement and the Prospectus and any
amendment or supplement thereto (other than the financial
statements and schedules, related notes and other financial
and statistical data included therein, as to which no
opinion need be rendered) comply as to form in all material
respects with the requirements of the Act and the Rules and
Regulations under the Act; and to the best of such counsel's
knowledge, there are no contracts, agreements, leases or
other documents of a character required to be disclosed in
the Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement that are not so
disclosed or filed;
(vi) (A) to such counsel's knowledge, there is not pending or
threatened against the Offerors or any of the Subsidiaries,
or involving any of their respective properties or
businesses, any action, suit, proceeding, inquiry,
investigation, litigation or governmental proceeding,
domestic or foreign, that (y) is required to be disclosed in
the Registration Statement and is not so disclosed (and such
proceedings as are summarized in the Registration Statement
are accurately summarized in all material respects), or (z)
questions the validity of the capital stock or equity
securities of the Company or the Trust, this Agreement, or
any action taken or to be taken by the Offerors pursuant to
or in connection with this Agreement and (B) no statute or
regulation or legal or, to such counsel's knowledge,
governmental proceeding required to be described in the
Prospectus is not described as required;
(vii) the Offerors have all requisite corporate and trust power
and authority to enter into this Agreement and to consummate
the transactions provided for herein; and this Agreement has
been duly authorized, executed and delivered by the Offerors
<PAGE> 20
and constitutes the legal, valid and binding obligation of
the Offerors enforceable in accordance with its terms. The
execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated herein and
in the Trust Agreement does not and will not result in any
breach or violation of any of the material terms or
provisions of, or constitute a default under, or result in
the creation or imposition of any lien, charge, claim,
pledge, security interest, or other encumbrance upon, any
property or assets (tangible or intangible) of the Offerors
or any of the Subsidiaries or the Designated Preferred
Securities pursuant to the terms of (A) the corporate
charter, operating agreement or by-laws, or other governing
instrument (including without limitation the Trust
Agreement) of the Offerors or any of the Subsidiaries, (B)
to such counsel's knowledge, the Guarantee, the Indenture,
the Expense Agreement, any voting trust agreement or any
stockholders agreement, or any indenture, mortgage, deed of
trust, note, loan or credit agreement or other agreement or
instrument known to such counsel to which either of the
Offerors or any of the Subsidiaries is a party or by which
any of them is or may be bound or to which any of their
respective properties or assets (tangible or intangible) is
or may be subject, or (C) any statute, rule or regulation
or, to such counsel's knowledge, any judgment, decree or
order applicable to either of the Offerors or any of the
Subsidiaries of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body
having jurisdiction over either of the Offerors or any of
the Subsidiaries or any of their respective activities or
properties, the violation of which would have a Material
Adverse Effect;
(viii) each of the Indenture, the Trust Agreement and the Guarantee
has been duly qualified under the Trust Indenture Act, has
been duly authorized, executed and delivered by the Company,
and is a valid and legally binding obligation of the Company
enforceable in accordance with its terms;
(ix) the Debentures have been duly authorized, executed,
authenticated and delivered by the Company, are entitled to
the benefits of the Indenture and are legal, valid and
binding obligations of the Company enforceable against the
Company in accordance with their terms;
(x) the Expense Agreement has been duly authorized, executed and
delivered by the Company, and is a valid and legally binding
obligation of the Company enforceable in accordance with its
terms;
(xi) no consent, approval, authorization or order of, and no
filing with, any federal or state court, regulatory body,
government agency or other body (other than such as have
been effected under the Act and the Exchange Act and such as
may be required under Blue Sky or state securities laws or
the rules of the NASD in connection with the purchase and
distribution of the Designated Preferred Securities by the
Underwriters, as to which no opinion need be rendered) is
required in connection with the issuance of the Designated
Preferred Securities pursuant to the Prospectus and the
<PAGE> 21
Registration Statement, the performance of this Agreement
and the transactions contemplated hereby;
(xii) to such counsel's knowledge neither the Offerors nor any of
the Subsidiaries is in violation of any term or provision of
its corporate charter, operating agreement, or by-laws or
other governing instrument (including without limitation the
Trust Agreement);
(xiii) the statements in the Prospectus (or incorporated therein by
reference) under the captions "Holding Company Regulation,"
"Description of the Preferred Securities," "Description of
the Junior Subordinated Debentures," "Description of the
Guarantee," "Relationship Among the Preferred Securities,
the Subordinated Debentures and the Guarantee," "Certain
Federal Income Tax Consequences," and "ERISA Considerations"
have been reviewed by such counsel, and insofar as they
refer to statements of law, descriptions of statutes,
written contracts, or rules or regulations, are correct in
all material respects; and
(xiv) Except as set forth in the Prospectus, to the best of such
counsel's knowledge, there are no contractual encumbrances
or restrictions, or material legal restrictions required to
be described therein on the ability of the Subsidiaries (A)
to pay dividends or make any other distributions on their
capital stock or to pay indebtedness owed to the Offerors,
(B) to make any loans or advances to, or investments in, the
Offerors or (C) to transfer any of their property or assets
to the Offerors.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Offerors
and representatives of the independent certified public accountants
for the Offerors, at which conferences the contents of the
Registration Statement and the Prospectus and related matters were
discussed, and, although such counsel is not passing upon and does not
assume any responsibility for, nor has such counsel independently
verified, the accuracy, completeness or fairness of the statements
contained in the Registration Statement and Prospectus, no facts have
come to the attention of such counsel that lead them to believe that
either the Registration Statement or any amendment thereto, at any
time such Registration Statement or amendment became effective or any
Preliminary Prospectus circulated by the Underwriters (other than
information omitted pursuant to Rule 430A as of the date of such
Preliminary Prospectus) or the Prospectus or any amendment or
supplement thereto as of the date of such opinion contained or
contains any untrue statement of a material fact or omitted or omits
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances under which they were made (it being understood that
such counsel need express no view with respect to the financial
statements and schedules, related notes, and other financial and
statistical data included or incorporated by reference in any
Preliminary Prospectus circulated by the Underwriters, the
Registration Statement (including any exhibit thereto) or the
Prospectus or any amendment or supplement thereto).
The foregoing opinion may be limited to the laws of The Commonwealth
<PAGE> 22
of Massachusetts, the laws of the jurisdictions of incorporation of
the Subsidiaries and applicable United States federal law. In
rendering the foregoing opinions, counsel may rely, to the extent they
deem such reliance proper, on the opinions of other counsel as to
matters governed by the laws of jurisdictions other than the United
States and The Commonwealth of Massachusetts. In rendering such
opinions, such counsel may rely as to matters of fact, to the extent
they deem proper, on certificates and written statements of
responsible officers of the Offerors and the Subsidiaries and
certificates or other written statements of officers of departments of
various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company and the
Subsidiaries, provided that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel if requested.
For purposes of any of the opinions to be rendered by such counsel
pursuant to this subsection (d) of Section 6, the term "to such
counsel's knowledge" shall mean, to the extent that such opinion
relates to a factual issue or to a mixed question of law and fact,
that after examination of documents in such counsel's files relating
to the Offering and considering the actual knowledge of the individual
attorneys in such counsel's firm who have given substantive attention
to matters on behalf of the Offerors, such counsel finds no reason to
believe that any of such opinions is factually incorrect.
The opinion of counsel to the Offerors, to be dated the Option Closing
Date, if any, may confirm as of the Option Closing Date the statements
made by such counsel in their opinion delivered on the Closing Date.
(2) Morris, Nichols, Arsht & Tunnell, special Delaware counsel to the
Offerors, shall have furnished to you their signed opinion, dated as of Closing
Date or the Option Closing Date, as the case may be, in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
(i) The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust
Act, 12 DEL. C. secs. 3801 ET SEQ. (the "Delaware Act"), with
the business trust power and authority to (a) own its property
and conduct its business as described in the Prospectus, (b)
execute and deliver, and perform its obligations under, this
Agreement and (c) issue and perform its obligations under the
Trust Preferred Securities.
(ii) The Trust Agreement constitutes a legal, valid and binding
obligation of the Company and the trustees of the Trust in
accordance with its terms.
(iii) Under the Trust Agreement and the Delaware Act, all necessary
trust action has been taken on the part of the Trust to duly
authorize the execution and delivery of this Agreement by the
Trust and the performance of its obligations hereunder.
(iv) The Designated Preferred Securities have been duly authorized for
issuance by the Trust Agreement and, when issued and delivered in
accordance with the terms of the Trust Agreement and this
Agreement and as described in the Prospectus, will be validly
issued and (subject to the terms of the Trust Agreement) fully
paid and non-assessable undivided beneficial interests in the
assets of the Trust. The holders of the Preferred Securities
<PAGE> 23
will be entitled to the benefits of the Trust Agreement and will
be entitled to the same limitation of personal liability extended
to stockholders of private corporations for profit organized
under the Delaware General Corporation Law. Such opinion may note
that the holders of the Preferred Securities may be required to
make payment or provide indemnity or security as set forth in the
Trust Agreement.
(v) Under the Trust Agreement and the Delaware Act, the issuance of
the Preferred Securities is not subject to preemptive rights.
(vi) The issuance and sale by the Trust of the Designated Preferred
Securities and the Common Securities, the execution, delivery and
performance by the Trust of this Agreement, and the consummation
by the Trust of the transactions contemplated by this Agreement
do not violate (a) any of the provisions of the Certificate of
Trust or the Trust Agreement or (b) any applicable Delaware law
or administrative regulation.
Such opinion may state that is limited to the laws of the State of Delaware
and that the opinion expressed in paragraph (ii) above is subject to the effect
upon the Trust Agreement of (i) bankruptcy, insolvency, receivership,
liquidation, fraudulent conveyance, reorganization, moratorium and similar laws
of general applicability relating to or affecting creditors' rights and
remedies, (ii) general principles of equity (regardless of whether considered
and applied in a proceeding in equity or at law), and (iii) considerations of
public policy and the effect of applicable law relating to fiduciary duties.
(e) On or prior to each of the Closing Date and the Option Closing
Date, if any, Underwriters' Counsel shall have been furnished such
customary documents, certificates and opinions as they may reasonably
require for the purpose of enabling them to review or pass upon the matters
referred to in subsection (d) of this Section 6, or in order to evidence
the accuracy, completeness or satisfaction of any of the representations,
warranties or conditions of the Offerors herein contained.
(f) Prior to each of the Closing Date and the Option Closing Date, if
any, (i) from the respective dates as of which information is set forth in
the Registration Statement and Prospectus, there shall have been no
developments that, individually or in the aggregate, have had a Material
Adverse Effect; (ii) there shall have been no transaction, not in the
ordinary course of business, entered into by either of the Offerors or any
of the Subsidiaries, from the latest date as of which the financial
condition of the Offerors and the Subsidiaries is set forth in the
Registration Statement and Prospectus, that, individually or in the
aggregate, has had a Material Adverse Effect; (iii) neither the Offerors
nor any of the Subsidiaries shall be in default under any provision of any
instrument relating to any of their respective outstanding indebtedness;
(iv) no material amount of the assets of the Offerors or any of the
Subsidiaries shall have been pledged or mortgaged, except as set forth in
the Registration Statement and Prospectus (including the exhibits to the
Registration Statement); (v) no action, suit or proceeding, at law or in
equity, shall have been pending or, to the knowledge of the Offerors,
threatened against the Offerors or any of the Subsidiaries, or affecting
any of their respective properties or businesses before or by any court or
federal, state or foreign commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding would have a Material
<PAGE> 24
Adverse Effect; and (vi) no stop order shall have been issued under the Act
and no proceedings therefor shall have been initiated, or, to the
Offerors's knowledge, threatened or contemplated by the Commission.
(g) At each of the Closing Date and the Option Closing Date, if any,
the Representative shall have received a certificate of the Offerors signed
by the principal executive officer and by the chief financial officer of
the Company and by the Administrative Trustees of the Trust, dated the
Closing Date or Option Closing Date, as the case may be, to the effect that
each of such persons has carefully examined the Registration Statement, the
Prospectus and this Agreement and that:
(i) the representations and warranties of the applicable Offeror
in this Agreement are true and correct, as if made on and as
of the Closing Date or the Option Closing Date, as the case
may be, and the applicable Offeror has complied with all
agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or
satisfied at or prior to such Closing Date or Option Closing
Date, as the case may be;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings
for that purpose have been instituted or are pending or, to
the knowledge of such officer, are threatened under the Act;
(iii) none of the Registration Statement, the Prospectus nor any
amendment or supplement thereto includes any untrue
statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading and neither the
Preliminary Prospectus nor any supplement thereto included
any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary
to make the statements therein, in light of the
circumstances under which they were made, not misleading;
and
(iv) subsequent to the respective dates as of which information
is given in the Registration and the Prospectus, neither the
Offerors nor any of the Subsidiaries has incurred up to and
including the Closing Date or the Option Closing Date, as
the case may be, other than in the ordinary course of their
respective businesses, any material liabilities or
obligations, direct or contingent; the Offerors has not paid
or declared any dividends or other distributions on its
capital or equity securities; neither the Offerors nor any
of the Subsidiaries has entered into any transactions not in
the ordinary course of business; and there has not been any
material change in the capital stock or long-term debt or
any material increase in the short-term borrowings of the
Offerors or any of the Subsidiaries; neither the Offerors
nor any of the Subsidiaries has sustained any material loss
or damage to its property or assets, whether or not insured;
there is no litigation that is pending or, to the knowledge
of such officers, threatened against the Offerors or any of
the Subsidiaries that is required to be set forth in an
amended or supplemented Prospectus that has not been set
forth; and there has occurred no event required to be
<PAGE> 25
set forth in an amended or supplemented Prospectus that has
not been set forth.
References to the Registration Statement and the Prospectus in this
subsection (g) are to such documents as amended and supplemented at the
date of such certificate.
(h) On the date of this Agreement, the Representative shall have
received a letter in form and substance satisfactory to the Representative
and the Underwriters' Counsel addressed to the Underwriters and dated the
date of this Agreement from AA and signed by such firm with respect to such
matters as shall have been specified to such firm by the Underwriters prior
to the date hereof. At the Closing Date and the Option Closing Date, if
any, the Underwriters shall have received from AA a letter, dated as of the
Closing Date or the Option Closing Date, as the case may be, reaffirming
the statements made in the letter furnished by AA to the Underwriters
concurrently with the execution of this Agreement, each such reaffirming
letter to be in form and substance satisfactory to the Underwriters and the
Underwriters' Counsel.
(i) On each of the Closing Date and the Option Closing Date, if any,
there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Designated Preferred
Securities.
(j) No order suspending the sale of the Designated Preferred
Securities in any jurisdiction designated by the Representative pursuant to
subsection (c) of Section 4 hereof shall have been issued on either the
Closing Date or the Option Closing Date, if any, and no proceedings for
that purpose shall have been instituted or to the knowledge of the
Representative or the Offerors shall be contemplated.
(k) The Designated Preferred Securities delivered on the Closing Date
or the Option Closing Date shall have been duly listed, subject to notice
of official issuance, on the NASDAQ-NM.
(l) On the Closing Date, you shall have received duly executed
counterparts of the Trust Agreement, the Guarantee, the Indenture and the
Expense Agreement.
(m) The NASD, upon review of the terms of the public offering of the
Designated Preferred Securities, shall not have objected to the
Underwriters' participation in such offering.
(n) Prior to the Closing Date and, if applicable, the Option Closing
Date, the Offerors shall have furnished to you and Underwriters' Counsel
all such other documents, certificates and opinions as they have reasonably
requested.
If any condition to the Underwriters' obligations hereunder to be fulfilled
prior to or at the Closing Date or the relevant Option Closing Date, as the case
may be, is not so fulfilled, the Underwriters may terminate this Agreement or,
if the Underwriters so elects, it may waive any such conditions that have not
been fulfilled or extend the time for their fulfillment.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Offerors jointly and severally agree to defend, indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become
<PAGE> 26
subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any breach of any representation, warranty, agreement or
covenant of the Company or the Trust herein contained or any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; and agrees to
reimburse each Underwriter subject to subsection (d) for any legal or other
expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the Offerors shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, such Preliminary
Prospectus or the Prospectus, or any such amendment or supplement, in
reliance upon and in conformity in all material respects with written
information furnished with respect to any Underwriters by such Underwriter
expressly for use in the Registration Statement, any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto, provided that
such written information or omissions only pertain to disclosures in the
Registration Statement, any preliminary Prospectus or the Prospectus or any
amendment or supplement thereto directly relating to the transactions
effected by the Underwriters in connection with this offering, and provided
further that the foregoing indemnity with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter (or to the
benefit of any person controlling such Underwriter) if such untrue
statement or omission or alleged untrue statement or omission made in any
Preliminary Prospectus is eliminated or remedied in the Prospectus and a
copy of the Prospectus has not been furnished to the person asserting any
such loss, claim, damage or liability at or prior to the written
confirmation of the sale of such Preferred Securities to such person.
The indemnity agreement in this Section 7(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of each
person, if any, who controls any Underwriter within the meaning of the Act.
This indemnity agreement shall be in addition to any liabilities which the
Offerors may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Offerors to the same extent as the foregoing
indemnity from the Company to the Underwriters but only with respect to
statements or omissions, if any, made in the Registration Statement, any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto made in reliance upon, and in conformity in all material respects
with, written information furnished with respect to any Underwriter by such
Underwriter expressly for use in the Registration Statement, any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, provided that such written information or omissions only pertain
to disclosures in the Registration Statement, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto directly relating to
the transactions effected by the Underwriters in connection with this
offering.
The indemnity agreement in this Section 7(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each
officer and director of the Company and the Trust who has signed the
Registration Statement, and each person, if any, who controls the Company
<PAGE> 27
or the Trust within the meaning of the Act. This indemnity agreement shall
be in addition to any liabilities which each Underwriter may otherwise
have. For purposes of this Agreement, the Offerors acknowledge that the
statements with respect to the public offering of the Designated Preferred
Securities set forth under the heading "UNDERWRITING" and the stabilization
legend in the Prospectus and the last paragraph on the outside front cover
page of the Prospectus have been furnished by the Underwriters expressly
for use therein and constitute the only information furnished in writing by
or on behalf of the Underwriters for inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section 7, notify the indemnifying party in writing of the
commencement thereof but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party under this Section 7 (except to the extent that the omissions of such
notice causes actual prejudice to the indemnifying party), or otherwise
than under this Section 7. In case any such action is brought against any
indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent that it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party; provided,
however, if the defendants in any such action include both the indemnified
parties and the indemnifying party and counsel for the indemnified party
shall have reasonably concluded that there may be legal defenses available
to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel reasonably
satisfactory to the indemnifying party or parties to assume such legal
defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from
the indemnifying party to such indemnified party of its election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified
party under this Section 7 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for
the expenses of more than one separate counsel approved by the indemnifying
party, representing all the indemnified parties under Section 7(a), 7(b) or
7(c) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel reasonably satisfactory to the indemnified
party to represent the indemnified party within a reasonable time after
notice of commencement of the action, or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. In no event shall any indemnifying party
be liable in respect of any amounts paid in settlement of any action unless
the indemnifying party shall have approved the terms of such settlement;
provided however that such consent shall not be unreasonably withheld.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this
Section 7 but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time
to appeal or the denial of the last right of appeal) that such
<PAGE> 28
indemnification may not be enforced in such case notwithstanding the fact
that this Section 7 provides for indemnification in such case, all the
parties hereto shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others)
in such proportion so that the Underwriters are responsible pro rata for
the portion represented by the percentage that the underwriting discount
bears to the public offering price, and the Offerors are responsible for
the remaining portion, provided, however, that (i) no Underwriter shall not
be required to contribute any amount in excess of the underwriting discount
applicable to the Preferred Securities purchased by such Underwriter and
(ii) no person guilty of a fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to a contribution from any
person who is not guilty of such fraudulent misrepresentation.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including without limitation
the provisions of this Section 7, and are fully informed regarding such
provisions. They further acknowledge that the provisions of this Section 7
fairly allocate the risks in light of the ability of the parties to
investigate the Offerors and their business in order to assure that
adequate disclosure is made in the Registration Statement and Prospectus as
required by the Act and the Exchange Act. The parties are advised that
federal or state public policy, as interpreted by the courts in certain
jurisdictions, may be contrary to certain of the provisions of this Section
7, and the parties hereto hereby expressly waive and relinquish any right
or ability to assert such public policy as a defense to a claim under this
Section 7 and further agree not to attempt to assert any such defense.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties and agreements contained in this Agreement
or contained in certificates of officers of the Offerors submitted pursuant
thereto shall be deemed to be representations, warranties and agreements at the
Closing Date and the Option Closing Date, as the case may be, and such
representations, warranties and agreements, and the indemnity and contribution
agreements contained in Section 7 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter, the Offerors or any controlling person, and shall survive
termination of this Agreement or the issuance or sale and delivery of the
Designated Preferred Securities to the Underwriters.
9. EFFECTIVE DATE.
This Agreement shall become effective at 9:30 a.m., Eastern Time, on the
date hereof, or at such earlier time after the Registration Statement becomes
effective as the Representative, in its sole discretion, shall release the
Designated Preferred Securities for the sale to the public, provided, however
that the provisions of Sections 5, 7 and 9 of this Agreement shall at all times
be effective. For purposes of this Section 9, the Designated Preferred
Securities to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Representative of telegrams to securities
dealers releasing such Designated Preferred Securities for offering or the
release by the Representative for publication of the first newspaper
advertisement that is subsequently published relating to the Designated
Preferred Securities.
10. TERMINATION.
(a) Subject to subsection (d) of this Section 10, the Offerors may at
<PAGE> 29
any time before this Agreement becomes effective in accordance with Section
9, terminate this Agreement.
(b) Subject to subsection (d) of this Section 10, the Representative
shall have the right to terminate this Agreement, (i) if any calamitous
domestic or international event or act or occurrence has materially
disrupted, or in the Representative's opinion will in the immediate future
materially disrupt, general securities markets in the United States; or
(ii) if trading on the New York Stock Exchange, the NASDAQ-NM or in the
over-the-counter market shall have been suspended, or minimum or maximum
prices for trading shall have been fixed, or maximum ranges for prices for
securities shall have been required on the over-the-counter market by the
NASD or by order of the Commission or any other government authority having
jurisdiction; or (iii) if the United States shall have become involved in a
war or major hostilities; or (iv) if a banking moratorium has been declared
by the State of New York, the Commonwealth of Massachusetts or any federal
authority; or (v) if a moratorium in foreign exchange trading has been
declared; or (vi) if the Company or the Trust shall have sustained a loss
material or substantial to the Company or the Trust by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or
malicious act that, whether or not such loss shall have been insured, will,
in the Representative's reasonable opinion, make it inadvisable to proceed
with the delivery of the Designated Preferred Securities; or (vii) if there
shall have been a Material Adverse Effect.
(c) If any party hereto elects to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10,
such party shall notify, on the same day as such election is made, the
other parties hereto in accordance with the provisions of Section 13
hereof.
(d) Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 11 and 12 hereof), and
whether or not this Agreement is otherwise carried out, the provisions of
Sections 5, 7 and 9 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
thereof.
11. SUBSTITUTION OF THE UNDERWRITERS.
If one or more of the Underwriters shall fail (otherwise than for a reason
sufficient to justify the termination of this Agreement under the provisions of
Section 6, Section 10 or Section 12 hereof) to purchase the Designated Preferred
Securities that it or they are obligated to purchase on such date under this
Agreement (the "Defaulted Securities"), the Representative shall use its best
efforts within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but not
less than all, of the Defaulted Securities in such amounts as may be agreed upon
and upon the terms herein set forth; if, however, the Representative shall not
have completed such arrangements within such 24 hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
total number of Firm Preferred Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total
<PAGE> 30
number of Firm Preferred Securities and arrangements satisfactory to the
Representative for the purchase of the Defaulted Securities are not made
within 36 hours, this Agreement shall terminate without liability on the
part of any non-defaulting Underwriters. The Offerors may assist the
Representative in making such arrangements by procuring another party
satisfactory to the Representative to purchase the Defaulted Securities on
the terms set forth herein.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default that does not result in a termination of
this Agreement, the Representative shall have the right to postpone the Closing
Date for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements.
12. DEFAULT BY THE TRUST.
If the Trust shall fail at the Closing Date or the Option Closing Date, as
applicable, to sell and deliver the number of Preferred Securities that it is
obligated to sell hereunder on such date, then this Agreement shall terminate
(or, if such default shall occur with respect to any Option Preferred Securities
to be purchased on the Option Closing Date, the Underwriters may, at the
Representative's option, by notice from the Representative to the Company,
terminate the Underwriters' several obligations to purchase Designated Preferred
Securities from the Company on such date) without any liability on the part of
any non-defaulting party other than pursuant to Section 5 and Section 7 hereof.
No action taken pursuant to this Section shall relieve the Trust from liability,
if any, in respect of such default.
13. NOTICES.
All notices and communications hereunder may be mailed or transmitted by
any standard form of telecommunication and, except as herein otherwise
specifically provided, shall be in writing and shall be deemed to have been duly
given when delivered to a notice party hereto at the address specified herein or
at the address subsequently communicated in writing to the notice parties.
Notices to the Underwriters shall be directed to the Representative c/o Tucker
Anthony Incorporated, One Beacon Street, Boston, Massachusetts 02108, Attention:
Gregory W. Benning, Managing Director, and c/o McConnell, Budd & Downes, Inc.,
365 South Street, Morristown, NJ 07960, attention: William Downes, Managing
Director, with a copy to Regina M. Pisa, P.C., Goodwin, Procter & Hoar LLP,
Exchange Place, Boston, Massachusetts 02109. Notices to the Company or the Trust
shall be directed to c/o Abington Bancorp, Inc., 536 Washington Street,
Abington, Massachusetts 02351, with a copy to Peter W. Coogan, Esq., Foley, Hoag
& Eliot LLP, One Post Office Square, Boston, Massachusetts 02109. In each case a
notice party may change its address for notice hereunder by a written
communication to the other notice parties.
14. PARTIES.
This Agreement shall inure solely to the benefit of and shall be binding
upon, the Underwriters, the Offerors and the controlling persons, directors and
officers referred to in Section 7 hereof, and their respective successors, legal
representatives and assigns, and no other person shall have or be construed to
have any legal or equitable right, remedy or claim under or in respect of or by
virtue of this Agreement or any provisions herein contained. No purchaser of
Preferred Securities from any Underwriter shall be deemed to be a successor by
reason merely of such purchase.
<PAGE> 31
15. CONSTRUCTION.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT GIVING
EFFECT TO THE CHOICE OF LAW OR CONFLICT
OF LAWS PRINCIPLES.
16. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, and all of which taken together shall be
deemed to be one and the same instrument.
17. ENTIRE AGREEMENT.
This Agreement and the Schedules hereto contain the entire agreement
between the parties hereto in connection with the subject matter hereof and
supersede all prior agreements, written or oral, with respect to such subject
matter.
18. AMENDMENT.
This Agreement and the Schedules hereto may not be amended, modified or
altered without the written agreement of the Offerors and the Underwriters. If
the foregoing correctly sets forth the understanding between the Underwriters
and the Offerors, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement among us.
Very truly yours,
ABINGTON BANCORP, INC.
By:___________________________________
Name:
Title:
ABINGTON BANCORP CAPITAL TRUST
By:___________________________________
Name:
Title:
CONFIRMED AND ACCEPTED AS OF THE
DATE FIRST ABOVE WRITTEN:
TUCKER ANTHONY INCORPORATED McCONNELL, BUDD & DOWNES, INC.
By:___________________________________ By:____________________________________
Name: Name:
Title: Title:
<PAGE> 32
SCHEDULE A
NAME NUMBER OF FIRM PREFERRED SECURITIES
____ ___________________________________
Tucker Anthony Incorporated
McConnell, Budd & Downes, Inc.
______________________________
Total 1,100,000
<PAGE> 1
EXHIBIT 4.1
ABINGTON BANCORP, INC.
AND
STATE STREET BANK AND TRUST COMPANY
AS TRUSTEE
INDENTURE
% JUNIOR SUBORDINATED DEBENTURES DUE 2029
DATED AS OF ________, 1998.
<PAGE> 2
CROSS-REFERENCE TABLE
SECTION OF SECTION OF
TRUST INDENTURE ACT INDENTURE
OF 1939, AS AMENDED ----------
310(a)...................................................... 9.10
310(b)...................................................... 9.9, 9.11
310(c)...................................................... Not Applicable
311(a)...................................................... 9.14
311(b)...................................................... 9.14
311(c)...................................................... Not Applicable
312(a)...................................................... 6.1, 6.2(a)
312(b)...................................................... 6.2(c)
312(c)...................................................... 6.2(c)
313(a)...................................................... 6.4(a)
313(b)...................................................... 6.4(b)
313(c)...................................................... 6.4(a), 6.4(b)
313(d)...................................................... 6.4(c)
314(a)...................................................... 6.3(a)
314(b)...................................................... Not Applicable
314(c)...................................................... 15.7
314(d)...................................................... Not Applicable
314(e)...................................................... 15.7
314(f)...................................................... Not Applicable
315(a)...................................................... 9.1(a), 9.3
315(b)...................................................... 9.2
315(c)...................................................... 9.1(a)
315(d)...................................................... 9.1(b)
315(e)...................................................... 7.7
316(a)...................................................... 1.1, 7.6
316(b)...................................................... 7.4(b)
316(c)...................................................... 10.1(b)
317(a)...................................................... 7.2
317(b)...................................................... 5.3
318(a)...................................................... 15.9
Note: This Cross-Reference Table does not constitute part of this Indenture and
shall not affect the interpretation of any of its terms or provisions.
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INDENTURE
INDENTURE, dated as of , 1998, between ABINGTON BANCORP, INC., a
Massachusetts corporation (the "Company") and STATE STREET BANK AND TRUST
COMPANY, a trust company duly organized and existing under the laws of The
Commonwealth of Massachusetts, as trustee (the "Trustee");
RECITALS
WHEREAS, for its lawful corporate purposes, the Company has duly authorized
the execution and delivery of this Indenture to provide for the issuance of
securities to be known as its % Junior Subordinated Debentures due 2029
(hereinafter referred to as the "Debentures"), the form and substance of such
Debentures and the terms, provisions and conditions thereof to be set forth as
provided in this Indenture; and
WHEREAS, Abington Bancorp Capital Trust, a Delaware statutory business trust
(the "Trust"), has offered to the public up to $11,000,000 aggregate
liquidation amount of its Preferred Securities (as defined herein) and proposes
to invest the proceeds from such offering, together with the proceeds of the
issuance and sale by the Trust to the Company of $340,210 aggregate
liquidation amount of its Common Securities (as defined herein), in $11,340,210
aggregate principal amount of the Debentures; and
WHEREAS, the Company has requested that the Trustee execute and deliver this
Indenture; and
WHEREAS, all requirements necessary to make this Indenture a valid
instrument in accordance with its terms, and to make the Debentures, when
executed by the Company and authenticated and delivered by the Trustee, the
valid obligations of the Company, have been performed, and the execution and
delivery of this Indenture have been duly authorized in all respects; and
WHEREAS, to provide the terms and conditions upon which the Debentures are
to be authenticated, issued and delivered, the Company has duly authorized the
execution of this Indenture; and
WHEREAS, all things necessary to make this Indenture a valid agreement of
the Company, in accordance with its terms, have been done.
NOW, THEREFORE, in consideration of the premises and the purchase of the
Debentures by the holders thereof, it is mutually covenanted and agreed as
follows for the equal and ratable benefit of the holders of the Debentures:
ARTICLE I.
DEFINITIONS
SECTION 1.1. DEFINITIONS OF TERMS.
The terms defined in this Section 1.1 (except as in this Indenture otherwise
expressly provided or unless the context otherwise requires) for all purposes of
this Indenture and of any indenture supplemental hereto shall have the
respective meanings specified in this Section 1.1 and shall include the plural
as well as the singular. All other terms used in this Indenture that are defined
in the Trust Indenture Act, or that are by reference in the Trust Indenture Act
defined in the Securities Act (except as herein otherwise expressly provided or
unless the context otherwise requires), shall have the meanings assigned to such
terms in the Trust Indenture Act and in the Securities Act as in force at the
date of the execution of this instrument. All accounting terms used herein and
not expressly defined shall have the meanings assigned to such terms in
accordance with Generally Accepted Accounting Principles.
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"Accelerated Maturity Date" means if the Company elects to accelerate the
Maturity Date in accordance with Section 2.2(c), the date selected by the
Company which is prior to the Scheduled Maturity Date, but is on or after June
30, 2003.
"Additional Interest" shall have the meaning set forth in Section 2.5.
"Additional Senior Obligations" means all indebtedness of the Company
whether incurred on or prior to the date of this Indenture or thereafter
incurred, for claims in respect of derivative products such as interest and
foreign exchange rate contracts, commodity contracts and similar arrangements;
provided, however, that Additional Senior Obligations does not include claims in
respect of Senior Debt or Subordinated Debt or obligations which, by their
terms, are expressly stated to be not superior in right of payment to the
Debentures or to rank pari passu in right of payment with the Debentures. For
purposes of this definition, "claim" shall have the meaning assigned thereto in
Section 101(4) of the United States Bankruptcy Code of 1978, as amended.
"Administrative Trustees" shall have the meaning set forth in the Trust
Agreement.
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities or other ownership interests of the
specified Person; (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person; (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person; (d) a partnership in which the specified Person is a
general partner; (e) any officer or director of the specified Person; and (f) if
the specified Person is an individual, any entity of which the specified Person
is an officer, director or general partner.
"Authenticating Agent" means an authenticating agent with respect to the
Debentures appointed by the Trustee pursuant to Section 2.12.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or state
law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or any duly
authorized committee of such Board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification.
"Business Day" means, with respect to the Debentures, any day other than a
Saturday or a Sunday or a day on which federal or state banking institutions in
Boston, Massachusetts, are authorized or required by law, executive order or
regulation to close, or a day on which the Corporate Trust Office of the Trustee
or the Property Trustee is closed for business.
"Capital Treatment Event" means the receipt by the Trust of an Opinion of
Counsel, rendered by a law firm experienced in such matters to the effect that,
as a result of any amendment to or any change (including any announced
prospective change) in the laws (or any regulations thereunder) of the United
States or any political subdivision thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such proposed change, pronouncement or decision is announced on or after the
date of issuance of the Preferred Securities under the Trust Agreement, there is
more than an insubstantial risk of impairment of the Company's ability to treat
the aggregate Liquidation Amount of the Preferred Securities (or any substantial
portion thereof) as "Tier 1 Capital" (or the then equivalent thereof) for
purposes of the
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capital adequacy guidelines of the Federal Reserve, as then applicable to the
Company, provided, however, that the inability of the Company to treat all or
any portion of the Liquidation Amount of the Preferred Securities as Tier 1
Capital shall not constitute the basis for a Capital Treatment Event if such
inability results from the Company having cumulative preferred capital in excess
of the amount which may qualify for treatment as Tier 1 Capital under applicable
capital adequacy guidelines of the Federal Reserve.
"Certificate" means a certificate signed by the principal executive officer,
the principal financial officer, the principal accounting officer, the treasurer
or any vice president of the Company. The Certificate need not comply with the
provisions of Section 15.7.
"Change in 1940 Act Law" shall have the meaning set forth in the definition
of "Investment Company Event."
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Securities" means undivided beneficial interests in the assets of
the Trust which rank pari passu with the Preferred Securities; provided,
however, that upon the occurrence of an Event of Default, the rights of holders
of Common Securities to payment in respect of (i) distributions, and (ii)
payments upon liquidation, redemption and otherwise, are subordinated to the
rights of holders of Preferred Securities.
"Company" means Abington Bancorp, Inc., a Massachusetts corporation , a
corporation duly organized and existing under the laws of The Commonwealth of
Massachusetts, and, subject to the provisions of Article XII, shall also include
its successors and assigns.
"Compounded Interest" shall have the meaning set forth in Section 4.1.
"Corporate Trust Office" means the office of the Trustee at which, at any
particular time, its corporate trust business shall be principally administered,
which office at the date hereof is located at Two International Place, 4th
Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Department.
"Coupon Rate" shall have the meaning set forth in Section 2.5.
"Custodian" means any receiver, trustee, assignee, liquidator, or similar
official under any Bankruptcy Law.
"Debentures" shall have the meaning set forth in the Recitals hereto.
"Debentureholder," "holder of Debentures," "registered holder," or other
similar term, means the Person or Persons in whose name or names a particular
Debenture shall be registered on the books of the Company or the Trustee kept
for that purpose in accordance with the terms of this Indenture.
"Debenture Register" shall have the meaning set forth in Section 2.7(b).
"Debenture Registrar" shall have the meaning set forth in Section 2.7(b).
"Debt" means with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with
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the acquisition of property, assets or businesses; (iii) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (iv)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business); (v) every capital lease
obligation of such Person; and (vi) and every obligation of the type referred to
in clauses (i) through (v) of another Person and all dividends of another Person
the payment of which, in either case, such Person has guaranteed or is
responsible or liable, directly or indirectly, as obligor or otherwise.
"Default" means any event, act or condition that with notice or lapse of
time, or both, would constitute an Event of Default.
"Deferred Interest" shall have the meaning set forth in Section 4.1.
"Dissolution Event" means that as a result of the occurrence and
continuation of a Special Event, the Trust is to be dissolved in accordance with
the Trust Agreement and the Debentures held by the Property Trustee are to be
distributed to the holders of the Trust Securities issued by the Trust pro rata
in accordance with the Trust Agreement.
"Distribution" shall have the meaning set forth in the Trust Agreement.
"Event of Default" means, with respect to the Debentures, any event
specified in Section 7.1, which has continued for the period of time, if any,
and after the giving of the notice, if any, therein designated.
"Exchange Act," means the Securities Exchange Act of 1934, as amended, as in
effect at the date of execution of this instrument.
"Extension Period" shall have the meaning set forth in Section 4.1.
"Federal Reserve" means the Board of Governors of the Federal Reserve
System.
"Generally Accepted Accounting Principles" means such accounting principles
as are generally accepted at the time of any computation required hereunder.
"Governmental Obligations" means securities that are (i) direct obligations
of the United States of America for the payment of which its full faith and
credit is pledged; or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America, the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America that, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such Governmental
Obligation or a specific payment of principal of or interest on any such
Governmental Obligation held by such custodian for the account of the holder of
such depositary receipt; provided, however, that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depositary receipt from any amount received by the
custodian in respect of the Governmental Obligation or the specific payment of
principal of or interest on the Governmental Obligation evidenced by such
depositary receipt.
"Herein," "hereof," and "hereunder," and other words of similar import,
refer to this Indenture as a whole and not to any particular Article, Section or
other subdivision.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into in accordance with the terms hereof.
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"Interest Payment Date" shall have the meaning set forth in Section 2.5.
"Investment Company Act," means the Investment Company Act of 1940, as
amended, as in effect at the date of execution of this instrument.
"Investment Company Event" means the receipt by the Trust of an Opinion of
Counsel, rendered by a law firm experienced in such matters, to the effect that,
as a result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
the Trust is or shall be considered an "investment company" that is required to
be registered under the Investment Company Act, which Change in 1940 Act Law
becomes effective on or after the date of original issuance of the Preferred
Securities under the Trust Agreement.
"Maturity Date" means the date on which the Debentures mature and on which
the principal shall be due and payable together with all accrued and unpaid
interest thereon including Compounded Interest and Additional Interest, if any.
"Ministerial Action" shall have the meaning set forth in Section 3.2.
"Officers' Certificate" means a certificate signed by the President or a
Vice President and by the Treasurer or an Assistant Treasurer or the Controller
or an Assistant Controller or the Secretary or an Assistant Secretary of the
Company that is delivered to the Trustee in accordance with the terms hereof.
Each such certificate shall include the statements provided for in Section 15.7,
if and to the extent required by the provisions thereof.
"Opinion of Counsel" means an opinion in writing of legal counsel, who may
be an employee of or counsel for the Company, that is delivered to the Trustee
in accordance with the terms hereof. Each such opinion shall include the
statements provided for in Section 15.7, if and to the extent required by the
provisions thereof.
"Outstanding," when used with respect to the Debentures, means, as of the
date of determination, all of the Debentures theretofore executed and delivered
by the Trustee under this Indenture, except:
(a) the Debentures theretofore canceled by the Trustee or any Paying Agent,
or delivered to the Trustee or any Paying Agent for cancellation;
(b) the Debentures for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) for the holders of such Debentures;
(c) the Debentures which have been paid or in exchange for or in lieu of
which other Debentures have been executed and delivered pursuant to Section 2.7;
provided, however, that in determining whether the holders of a majority or
specified percentage in aggregate principal amount of the Debentures have given
any request, demand, authorization, direction, notice, consent or waiver
hereunder, the Debentures owned by the Company or any other obligor on the
Debentures or any Person directly or indirectly controlling or controlled by or
under common control with the Company or any other obligor on the Debentures
shall be disregarded and deemed not to be Outstanding, except that (a) in
determining whether any Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only the
Debentures that such Trustee knows to be so owned shall be so disregarded; and
(b) for the purposes hereof, the Trust shall be deemed not to be controlled by
the Company. The Debentures so owned which have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Debentures and the
pledgee is not a Person directly or
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indirectly controlling or controlled by or under direct or indirect common
control with the Company or any such other obligor.
"Paying Agent" means any paying agent or co-paying agent appointed pursuant
to Section 5.3.
"Person" means any individual, corporation, partnership, joint-venture,
trust, limited liability company, joint-stock company, unincorporated
organization or government or any agency or political subdivision thereof.
"Predecessor Debenture" means every previous Debenture evidencing all or a
portion of the same debt as that evidenced by such particular Debenture; and,
for the purposes of this definition, any Debenture authenticated and delivered
under Section 2.9 in lieu of a lost, destroyed or stolen Debenture shall be
deemed to evidence the same debt as the lost, destroyed or stolen Debenture.
"Preferred Securities" means undivided beneficial interests in the assets of
the Trust which rank pari passu with Common Securities issued by the Trust;
provided, however, that upon the occurrence of an Event of Default, the rights
of holders of Common Securities to payment in respect of (i) distributions, and
(ii) payments upon liquidation, redemption and otherwise, are subordinated to
the rights of holders of Preferred Securities.
"Preferred Securities Guarantee" means any guarantee that the Company may
enter into with the Trustee or other Persons that operates directly or
indirectly for the benefit of holders of Preferred Securities.
"Property Trustee" has the meaning set forth in the Trust Agreement.
"Responsible Officer" when used with respect to the Trustee means the
Chairman of the Board of Directors, the President, any Vice President, the
Secretary, the Treasurer, any trust officer, any corporate trust officer or any
other officer or assistant officer of the Trustee customarily performing
functions similar to those performed by the Persons who at the time shall be
such officers, respectively, or to whom any corporate trust matter is referred
because of his or her knowledge of and familiarity with the particular subject.
"Scheduled Maturity Date" means June 30, 2029.
"Securities Act," means the Securities Act of 1933, as amended, as in effect
at the date of execution of this instrument.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or prior to the date of this Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Debentures or to other Debt which is pari
passu with, or subordinated to, the Debentures; provided, however, that Senior
Debt shall not be deemed to include (i) any Debt of the Company which when
incurred and without respect to any election under section 1111(b) of the United
States Bankruptcy Code of 1978, as amended, was without recourse to the Company;
(ii) any Debt of the Company to any of its subsidiaries; (iii) Debt to any
employee of the Company; (iv) Debt which by its terms is subordinated to trade
accounts payable or accrued liabilities arising in the ordinary course of
business to the extent that payments made to the holders of such Debt by the
holders of the Debentures as a result of the subordination provisions of this
Indenture would be greater than they otherwise would have been as a result of
any obligation of such holders to pay amounts over to the obligees on such trade
accounts payable or accrued liabilities arising in the ordinary course of
business as a result of subordination provisions to which such Debt is subject;
and (v) Debt which constitutes Subordinated Debt.
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"Senior Indebtedness" shall have the meaning set forth in Section 16.1.
"Special Event" means a Tax Event, a Capital Treatment Event or an
Investment Company Event.
"Subordinated Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt (other than the Debentures), whether incurred on or prior to the date of
this Indenture or thereafter incurred, which is by its terms expressly provided
to be junior and subordinate to other Debt of the Company (other than the
Debentures).
"Subsidiary" means, with respect to any Person, (i) any corporation at least
a majority of whose outstanding Voting Stock shall at the time be owned,
directly or indirectly, by such Person or by one or more of its Subsidiaries or
by such Person and one or more of its Subsidiaries; (ii) any general
partnership, joint venture, trust or similar entity, at least a majority of
whose outstanding partnership or similar interests shall at the time be owned by
such Person, or by one or more of its Subsidiaries, or by such Person and one or
more of its Subsidiaries; and (iii) any limited partnership of which such Person
or any of its Subsidiaries is a general partner.
"Tax Event" means the receipt by the Trust of an Opinion of Counsel,
rendered by a law firm experienced in such matters, to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or as a result of
any official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance of
the Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Trust is, or shall be within 90 days after the
date of such Opinion of Counsel, subject to United States federal income tax
with respect to income received or accrued on the Debentures; (ii) interest
payable by the Company on the Debentures is not, or within 90 days after the
date of such Opinion of Counsel, shall not be, deductible by the Company, in
whole or in part, for United States federal income tax purposes; or (iii) the
Trust is, or shall be within 90 days after the date of such Opinion of Counsel,
subject to more than a de minimis amount of other taxes, duties, assessments or
other governmental charges. The Trust or the Company shall request and receive
such Opinion of Counsel with regard to such matters within a reasonable period
of time after the Trust or the Company shall have become aware of the possible
occurrence of any of the events described in clauses (i) through (iii) above.
"Trust" means Abington Bancorp Capital Trust, a Delaware statutory business
trust.
"Trust Agreement" means the Amended and Restated Trust Agreement, dated
____________, 1998, of the Trust.
"Trustee" means State Street Bank and Trust Company and, subject to the
provisions of Article IX, shall also include its successors and assigns, and, if
at any time there is more than one Person acting in such capacity hereunder,
"Trustee" shall mean each such Person.
"Trust Indenture Act," means the Trust Indenture Act of 1939, as amended,
subject to the provisions of Sections 11.1, 11.2, and 12.1, as in effect at the
date of execution of this instrument.
"Trust Securities" means the Common Securities and Preferred Securities,
collectively.
"Voting Stock," as applied to stock of any Person, means shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person having ordinary voting power for the election of a majority of
the directors (or the equivalent) of such Person, other than shares, interests,
participations or other equivalents having
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such power only by reason of the occurrence of a contingency.
ARTICLE II.
ISSUE, DESCRIPTION, TERMS, CONDITIONS
REGISTRATION AND EXCHANGE OF THE DEBENTURES
SECTION 2.1 DESIGNATION AND PRINCIPAL AMOUNT.
There is hereby authorized Debentures designated the " % Subordinated
Debentures due 2029," limited in aggregate principal amount up to
$13,041,250, which amount shall be as set forth in any written order of the
Company for the authentication and delivery of Debentures pursuant to Section
2.6.
SECTION 2.2. MATURITY.
(a) The Maturity Date shall be either:
(i) the Scheduled Maturity Date; or
(ii) if the Company elects to accelerate the Maturity Date to be a date
prior to the Scheduled Maturity Date in accordance with Section 2.2(b), the
Accelerated Maturity Date.
(b) The Company may, on one occasion, at any time before the day which is 90
days before the Scheduled Maturity Date and on or after June 30, 2003, elect to
shorten the Maturity Date to the Accelerated Maturity Date provided that the
Company has received the prior approval of the Federal Reserve if then required
under applicable capital guidelines or policies of the Federal Reserve.
(c) If the Company elects to accelerate the Maturity Date in accordance with
Section 2.2(b), the Company shall give notice to the registered holders of the
Debentures, the Property Trustee and the Trust of the acceleration of the
Maturity Date and the Accelerated Maturity Date at least 90 days and no more
than 180 days before the Accelerated Maturity Date.
SECTION 2.3. FORM AND PAYMENT.
The Debentures shall be issued in fully registered certificated form without
interest coupons. Principal and interest on the Debentures issued in
certificated form shall be payable, the transfer of such Debentures shall be
registrable and such Debentures shall be exchangeable for Debentures bearing
identical terms and provisions at the office or agency of the Trustee; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the holder at such address as shall appear in the Debenture
Register or by wire transfer to an account maintained by the holder as specified
in the Debenture Register, provided that the holder provides proper transfer
instructions by the regular record date. Notwithstanding the foregoing, so long
as the holder of any Debentures is the Property Trustee, the payment of the
principal of and interest (including Compounded Interest and Additional
Interest, if any) on such Debentures held by the Property Trustee shall be made
at such place and to such account as may be designated by the Property Trustee.
SECTION 2.4. [INTENTIONALLY OMITTED]
SECTION 2.5. INTEREST.
(a) Each Debenture shall bear interest at the rate of % per annum (the
"Coupon Rate") from the original date
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of issuance until the principal thereof becomes due and payable, and on any
overdue principal and (to the extent that payment of such interest is
enforceable under applicable law) on any overdue installment of interest at the
Coupon Rate, compounded quarterly, payable (subject to the provisions of Article
IV) quarterly in arrears on March 31, June 30, September 30, and December 31 of
each year (each, an "Interest Payment Date," commencing on September 30, 1998),
to the Person in whose name such Debenture or any Predecessor Debenture is
registered, at the close of business on the regular record date for such
interest installment, which shall be the fifteenth day of the last month of the
calendar quarter.
(b) The amount of interest payable for any period shall be computed on the
basis of a 360-day year of twelve 30-day months. The amount of interest payable
for any period shorter than a full quarterly period for which interest is
computed shall be computed on the basis of the number of days elapsed in a
360-day year of twelve 30-day months. In the event that any date on which
interest is payable on the Debentures is not a Business Day, then payment of
interest payable on such date shall be made on the next succeeding day which is
a Business Day (and without any interest or other payment in respect of any such
delay) with the same force and effect as if made on the date such payment was
originally payable.
(c) If, at any time while the Property Trustee is the holder of any
Debentures, the Trust or the Property Trustee is required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States, or any other taxing authority,
then, in any case, the Company shall pay as additional interest ("Additional
Interest") on the Debentures held by the Property Trustee, such additional
amounts as shall be required so that the net amounts received and retained by
the Trust and the Property Trustee after paying such taxes, duties, assessments
or other governmental charges shall be equal to the amounts the Trust and the
Property Trustee would have received had no such taxes, duties, assessments or
other government charges been imposed.
SECTION 2.6. EXECUTION AND AUTHENTICATIONS.
(a) The Debentures shall be signed on behalf of the Company by its Chief
Executive Officer, President or one of its Vice Presidents, under its corporate
seal attested by its Secretary or one of its Assistant Secretaries. Signatures
may be in the form of a manual or facsimile signature. The Company may use the
facsimile signature of any Person who shall have been a Chief Executive Officer,
President or Vice President thereof, or of any Person who shall have been a
Secretary or Assistant Secretary thereof, notwithstanding the fact that at the
time the Debentures shall be authenticated and delivered or disposed of such
Person shall have ceased to be the Chief Executive Officer, President or a Vice
President, or the Secretary or an Assistant Secretary, of the Company. The seal
of the Company may be in the form of a facsimile of such seal and may be
impressed, affixed, imprinted or otherwise reproduced on the Debentures. The
Debentures may contain such notations, legends or endorsements required by law,
stock exchange rule or usage. Each Debenture shall be dated the date of its
authentication by the Trustee.
(b) A Debenture shall not be valid until manually authenticated by an
authorized signatory of the Trustee, or by an Authenticating Agent. Such
signature shall be conclusive evidence that the Debenture so authenticated has
been duly authenticated and delivered hereunder and that the holder is entitled
to the benefits of this Indenture.
(c) At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Debentures executed by the Company to
the Trustee for authentication, together with a written order of the Company for
the authentication and delivery of such Debentures signed by its Chief Executive
Officer, President or any Vice President and its Treasurer or any Assistant
Treasurer, and the Trustee in accordance with such written order shall
authenticate and deliver such Debentures.
(d) In authenticating such Debentures and accepting the additional
responsibilities under this Indenture in relation to such Debentures, the
Trustee shall be entitled to receive, and (subject to Section 9.1) shall be
fully protected in relying upon, an Opinion of Counsel stating that the form and
terms thereof have been established in conformity with
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the provisions of this Indenture.
(e) The Trustee shall not be required to authenticate such Debentures if the
issue of such Debentures pursuant to this Indenture shall affect the Trustee's
own rights, duties or immunities under the Debentures and this Indenture or
otherwise in a manner that is not reasonably acceptable to the Trustee.
SECTION 2.7. REGISTRATION OF TRANSFER AND EXCHANGE.
(a) Debentures may be exchanged upon presentation thereof at the office or
agency of the Company designated for such purpose in Boston, Massachusetts , or
at the office of the Debenture Registrar, for other Debentures and for a like
aggregate principal amount, upon payment of a sum sufficient to cover any tax or
other governmental charge in relation thereto, all as provided in this Section
2.7. In respect of any Debentures so surrendered for exchange, the Company shall
execute, the Trustee shall authenticate and such office or agency shall deliver
in exchange therefor the Debenture or Debentures that the Debentureholder making
the exchange shall be entitled to receive, bearing numbers not contemporaneously
outstanding.
(b) The Company shall keep, or cause to be kept, at its office or agency
designated for such purpose in Boston, Massachusetts, or at the office of the
Debenture Registrar, or such other location designated by the Company a register
or registers (herein referred to as the "Debenture Register") in which, subject
to such reasonable regulations as it may prescribe, the Company shall register
the Debentures and the transfers of Debentures as in this Article II provided
and which at all reasonable times shall be open for inspection by the Trustee.
The registrar for the purpose of registering Debentures and transfer of
Debentures as herein provided shall initially be the Trustee and thereafter as
may be appointed by the Company as authorized by Board Resolution (the
"Debenture Registrar"). Upon surrender for transfer of any Debenture at the
office or agency of the Company designated for such purpose, the Company shall
execute, the Trustee shall authenticate and such office or agency shall deliver
in the name of the transferee or transferees a new Debenture or Debentures for a
like aggregate principal amount. All Debentures presented or surrendered for
exchange or registration of transfer, as provided in this Section 2.7, shall be
accompanied (if so required by the Company or the Debenture Registrar) by a
written instrument or instruments of transfer, in form satisfactory to the
Company or the Debenture Registrar, duly executed by the registered holder or by
such holder's duly authorized attorney in writing.
(c) No service charge shall be made for any exchange or registration of
transfer of Debentures, or issue of new Debentures in case of partial
redemption, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge in relation thereto, other than exchanges
pursuant to Section 2.8, Section 3.5(b) and Section 11.4 not involving any
transfer.
(d) The Company shall not be required (i) to issue, exchange or register the
transfer of any Debentures during a period beginning at the opening of business
15 days before the day of the mailing of a notice of redemption of less than all
the Outstanding Debentures and ending at the close of business on the day of
such mailing; nor (ii) to register the transfer of or exchange any Debentures or
portions thereof called for redemption.
SECTION 2.8. TEMPORARY DEBENTURES.
Pending the preparation of definitive Debentures, the Company may execute,
and the Trustee shall authenticate and deliver, temporary Debentures (printed,
lithographed, or typewritten). Such temporary Debentures shall be substantially
in the form of the definitive Debentures in lieu of which they are issued, but
with such omissions, insertions and variations as may be appropriate for
temporary Debentures, all as may be determined by the Company. Every temporary
Debenture shall be executed by the Company and be authenticated by the Trustee
upon the same conditions and in substantially the same manner, and with like
effect, as the definitive Debentures. Without unnecessary delay the Company
shall execute and shall furnish definitive Debentures and thereupon any or all
temporary Debentures may be surrendered in exchange therefor (without charge to
the holders), at the office or agency
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of the Company designated for the purpose in Boston, Massachusetts, and the
Trustee shall authenticate and such office or agency shall deliver in exchange
for such temporary Debentures an equal aggregate principal amount of definitive
Debentures, unless the Company advises the Trustee to the effect that definitive
Debentures need not be executed and furnished until further notice from the
Company. Until so exchanged, the temporary Debentures shall be entitled to the
same benefits under this Indenture as definitive Debentures authenticated and
delivered hereunder.
SECTION 2.9. MUTILATED, DESTROYED, LOST OR STOLEN DEBENTURES.
(a) In case any temporary or definitive Debenture shall become mutilated or
be destroyed, lost or stolen, the Company (subject to the next succeeding
sentence) shall execute, and upon the Company's request the Trustee (subject as
aforesaid) shall authenticate and deliver, a new Debenture bearing a number not
contemporaneously outstanding, in exchange and substitution for the mutilated
Debenture, or in lieu of and in substitution for the Debenture so destroyed,
lost or stolen. In every case the applicant for a substituted Debenture shall
furnish to the Company and the Trustee such security or indemnity as may be
required by them to save each of them harmless, and, in every case of
destruction, loss or theft, the applicant shall also furnish to the Company and
the Trustee evidence to their satisfaction of the destruction, loss or theft of
the applicant's Debenture and of the ownership thereof. The Trustee shall
authenticate any such substituted Debenture and deliver the same upon the
written request or authorization of the Chairman, President or any Vice
President and the Treasurer or any Assistant Treasurer of the Company. Upon the
issuance of any substituted Debenture, the Company may require the payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and any other expenses (including the fees and expenses of
the Trustee) connected therewith. In case any Debenture that has matured or is
about to mature shall become mutilated or be destroyed, lost or stolen, the
Company may, instead of issuing a substitute Debenture, pay or authorize the
payment of the same (without surrender thereof except in the case of a mutilated
Debenture) if the applicant for such payment shall furnish to the Company and
the Trustee such security or indemnity as they may require to save them
harmless, and, in case of destruction, loss or theft, evidence to the
satisfaction of the Company and the Trustee of the destruction, loss or theft of
such Debenture and of the ownership thereof.
(b) Every replacement Debenture issued pursuant to the provisions of this
Section 2.9 shall constitute an additional contractual obligation of the Company
whether or not the mutilated, destroyed, lost or stolen Debenture shall be found
at any time, or be enforceable by anyone, and shall be entitled to all the
benefits of this Indenture equally and proportionately with any and all other
Debentures duly issued hereunder. All Debentures shall be held and owned upon
the express condition that the foregoing provisions are exclusive with respect
to the replacement or payment of mutilated, destroyed, lost or stolen
Debentures, and shall preclude (to the extent lawful) any and all other rights
or remedies, notwithstanding any law or statute existing or hereafter enacted to
the contrary with respect to the replacement or payment of negotiable
instruments or other securities without their surrender.
SECTION 2.10. CANCELLATION.
All Debentures surrendered for the purpose of payment, redemption, exchange
or registration of transfer shall, if surrendered to the Company or any Paying
Agent, be delivered to the Trustee for cancellation, or, if surrendered to the
Trustee, shall be canceled by it, and no Debentures shall be issued in lieu
thereof except as expressly required or permitted by any of the provisions of
this Indenture. On request of the Company at the time of such surrender, the
Trustee shall deliver to the Company canceled Debentures held by the Trustee. In
the absence of such request the Trustee may dispose of canceled Debentures in
accordance with its standard procedures and deliver a certificate of disposition
to the Company. If the Company shall otherwise acquire any of the Debentures,
however, such acquisition shall not operate as a redemption or satisfaction of
the indebtedness represented by such Debentures unless and until the same are
delivered to the Trustee for cancellation.
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SECTION 2.11. BENEFIT OF INDENTURE.
Nothing in this Indenture or in the Debentures, express or implied, shall
give or be construed to give to any Person, other than the parties hereto and
the holders of the Debentures (and, with respect to the provisions of Article
XVI, the holders of Senior Indebtedness) any legal or equitable right, remedy or
claim under or in respect of this Indenture, or under any covenant, condition or
provision herein contained; all such covenants, conditions and provisions being
for the sole benefit of the parties hereto and of the holders of the Debentures
(and, with respect to the provisions of Article XVI, the holders of Senior
Indebtedness).
SECTION 2.12. AUTHENTICATION AGENT.
(a) So long as any of the Debentures remain Outstanding there may be an
Authenticating Agent for any or all such Debentures, which the Trustee shall
have the right to appoint. Said Authenticating Agent shall be authorized to act
on behalf of the Trustee to authenticate Debentures issued upon exchange,
transfer or partial redemption thereof, and Debentures so authenticated shall be
entitled to the benefits of this Indenture and shall be valid and obligatory for
all purposes as if authenticated by the Trustee hereunder. All references in
this Indenture to the authentication of Debentures by the Trustee shall be
deemed to include authentication by an Authenticating Agent. Each Authenticating
Agent shall be acceptable to the Company and shall be a corporation that has a
combined capital and surplus, as most recently reported or determined by it,
sufficient under the laws of any jurisdiction under which it is organized or in
which it is doing business to conduct a trust business, and that is otherwise
authorized under such laws to conduct such business and is subject to
supervision or examination by federal or state authorities. If at any time any
Authenticating Agent shall cease to be eligible in accordance with these
provisions, it shall resign immediately.
(b) Any Authenticating Agent may at any time resign by giving written notice
of resignation to the Trustee and to the Company. The Trustee may at any time
(and upon request by the Company shall) terminate the agency of any
Authenticating Agent by giving written notice of termination to such
Authenticating Agent and to the Company. Upon resignation, termination or
cessation of eligibility of any Authenticating Agent, the Trustee may appoint an
eligible successor Authenticating Agent acceptable to the Company. Any successor
Authenticating Agent, upon acceptance of its appointment hereunder, shall become
vested with all the rights, powers and duties of its predecessor hereunder as if
originally named as an Authenticating Agent pursuant hereto.
ARTICLE III.
REDEMPTION OF DEBENTURES
SECTION 3.1. REDEMPTION.
Subject to the Company having received prior approval of the Federal
Reserve, if then required under the applicable capital guidelines or policies of
the Federal Reserve, the Company may redeem the Debentures issued hereunder on
and after the dates set forth in and in accordance with the terms of this
Article III.
SECTION 3.2. SPECIAL EVENT REDEMPTION.
Subject to the Company having received the prior approval of the Federal
Reserve, if then required under the applicable capital guidelines or policies of
the Federal Reserve, if a Special Event has occurred and is continuing, then,
notwithstanding Section 3.3(a) but subject to Section 3.3(b), the Company shall
have the right upon not less than 30 days nor more than 60 days notice to the
holders of the Debentures to redeem the Debentures, in whole but not in part,
for cash within 180 days following the occurrence of such Special Event (the
"180-Day Period") at a redemption price equal to 100% of the principal amount to
be redeemed plus any accrued and unpaid interest thereon to the date of such
redemption (the "Redemption Price"), provided that if at the time there is
available to the Company the opportunity to eliminate, within the 180-Day
Period, a Tax Event by taking some ministerial action (a "Ministerial Action"),
such
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as filing a form or making an election, or pursuing some other similar
reasonable measure which has no adverse effect on the Company, the Trust or the
holders of the Trust Securities issued by the Trust, the Company shall pursue
such Ministerial Action in lieu of redemption, and, provided further, that the
Company shall have no right to redeem the Debentures while the Trust is pursuing
any Ministerial Action pursuant to its obligations hereunder. The Redemption
Price shall be paid prior to 12:00 noon, Boston time, on the date of such
redemption or such earlier time as the Company determines, provided that the
Company shall deposit with the Trustee an amount sufficient to pay the
Redemption Price by 10:00 a.m., Boston time, on the date such Redemption Price
is to be paid.
SECTION 3.3. OPTIONAL REDEMPTION BY COMPANY.
(a) Subject to the provisions of Section 3.3(b), except as otherwise may be
specified in this Indenture, the Company shall have the right to redeem the
Debentures, in whole or in part, from time to time, on or after June 30, 2003,
at a Redemption Price equal to 100% of the principal amount to be redeemed plus
any accrued and unpaid interest thereon to the date of such redemption, plus
Deferred Interest, if any. Any redemption pursuant to this Section 3.3(a) shall
be made upon not less than 30 days nor more than 60 days notice to the holder of
the Debentures, at the Redemption Price. If the Debentures are only partially
redeemed pursuant to this Section 3.3, the Debentures shall be redeemed pro rata
or by lot or in such other manner as the Trustee shall deem appropriate and fair
in its discretion. The Redemption Price shall be paid prior to 12:00 noon,
Boston time, on the date of such redemption or at such earlier time as the
Company determines provided that the Company shall deposit with the Trustee an
amount sufficient to pay the Redemption Price by 10:00 a.m., Boston time, on the
date such Redemption Price is to be paid.
(b) If a partial redemption of the Debentures would result in the delisting
of the Preferred Securities issued by the Trust from the Nasdaq
National Market or any national securities exchange or other organization on
which the Preferred Securities are then listed, the Company shall not be
permitted to effect such partial redemption and may only redeem the Debentures
in whole.
SECTION 3.4. NOTICE OF REDEMPTION.
(a) In case the Company shall desire to exercise such right to redeem all
or, as the case may be, a portion of the Debentures in accordance with the right
reserved so to do, the Company shall, or shall cause the Trustee to upon receipt
of 45 days' written notice from the Company (which notice shall, in the event of
a partial redemption, include a representation to the effect that such partial
redemption shall not result in the delisting of the Preferred Securities as
described in Section 3.3(b) above), give notice of such redemption to holders of
the Debentures to be redeemed by mailing, first class postage prepaid, a notice
of such redemption not less than 30 days and not more than 60 days before the
date fixed for redemption to such holders at their last addresses as they shall
appear upon the Debenture Register unless a shorter period is specified in the
Debentures to be redeemed. Any notice that is mailed in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
the registered holder receives the notice. In any case, failure duly to give
such notice to the holder of any Debenture designated for redemption in whole or
in part, or any defect in the notice, shall not affect the validity of the
proceedings for the redemption of any other Debentures. In the case of any
redemption of Debentures prior to the expiration of any restriction on such
redemption provided in the terms of such Debentures or elsewhere in this
Indenture, the Company shall furnish the Trustee with an Officers' Certificate
evidencing compliance with any such restriction. Each such notice of redemption
shall specify the date fixed for redemption and the Redemption Price and shall
state that payment of the Redemption Price shall be made at the office or agency
of the Company in Boston, Massachusetts or at the Corporate Trust Office, upon
presentation and surrender of such Debentures, that interest accrued to the date
fixed for redemption shall be paid as specified in said notice and that from and
after said date interest shall cease to accrue. If less than all the Debentures
are to be redeemed, the notice to the holders of the Debentures shall specify
the particular Debentures to be redeemed. If the Debentures are to be redeemed
in part only, the notice shall state the portion of the principal amount thereof
to be redeemed and shall state that on and after the redemption date, upon
surrender of such Debenture, a new Debenture or Debentures in principal amount
equal to the unredeemed portion thereof shall be issued.
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(b) If less than all the Debentures are to be redeemed, the Company shall
give the Trustee at least 45 days' notice in advance of the date fixed for
redemption as to the aggregate principal amount of Debentures to be redeemed,
and thereupon the Trustee shall select, by lot or in such other manner as it
shall deem appropriate and fair in its discretion, the portion or portions
(equal to $10 or any integral multiple thereof) of the Debentures to be redeemed
and shall thereafter promptly notify the Company in writing of the numbers of
the Debentures to be redeemed, in whole or in part. The Company may, if and
whenever it shall so elect pursuant to the terms hereof, by delivery of
instructions signed on its behalf by its President or any Vice President,
instruct the Trustee or any Paying Agent to call all or any part of the
Debentures for redemption and to give notice of redemption in the manner set
forth in this Section 3.4, such notice to be in the name of the Company or its
own name as the Trustee or such Paying Agent may deem advisable. In any case in
which notice of redemption is to be given by the Trustee or any such Paying
Agent, the Company shall deliver or cause to be delivered to, or permit to
remain with, the Trustee or such Paying Agent, as the case may be, such
Debenture Register, transfer books or other records, or suitable copies or
extracts therefrom, sufficient to enable the Trustee or such Paying Agent to
give any notice by mail that may be required under the provisions of this
Section 3.4.
SECTION 3.5. PAYMENT UPON REDEMPTION.
(a) If the giving of notice of redemption shall have been completed as above
provided, the Debentures or portions of Debentures to be redeemed specified in
such notice shall become due and payable on the date and at the place stated in
such notice at the applicable Redemption Price, and interest on such Debentures
or portions of Debentures shall cease to accrue on and after the date fixed for
redemption, unless the Company shall default in the payment of such Redemption
Price with respect to any such Debenture or portion thereof. On presentation and
surrender of such Debentures on or after the date fixed for redemption at the
place of payment specified in the notice, said Debentures shall be paid and
redeemed at the Redemption Price (but if the date fixed for redemption is an
Interest Payment Date, the interest installment payable on such date shall be
payable to the registered holder at the close of business on the applicable
record date pursuant to Section 3.3).
(b) Upon presentation of any Debenture that is to be redeemed in part only,
the Company shall execute and the Trustee shall authenticate and the office or
agency where the Debenture is presented shall deliver to the holder thereof, at
the expense of the Company, a new Debenture of authorized denomination in
principal amount equal to the unredeemed portion of the Debenture so presented.
SECTION 3.6. NO SINKING FUND.
The Debentures are not entitled to the benefit of any sinking fund.
ARTICLE IV.
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1. EXTENSION OF INTEREST PAYMENT PERIOD.
So long as no Event of Default has occurred and is continuing, the Company
shall have the right, at any time and from time to time during the term of the
Debentures, to defer payments of interest by extending the interest payment
period of such Debentures for a period not exceeding 20 consecutive quarters
(the "Extension Period"), during which Extension Period no interest shall be due
and payable; provided that no Extension Period may extend beyond the Maturity
Date. Interest, the payment of which has been deferred because of the extension
of the interest payment period pursuant to this Section 4.1, shall bear interest
thereon at the Coupon Rate compounded quarterly for each quarter of the
Extension Period ("Compounded Interest"). At the end of the Extension Period,
the Company shall calculate (and deliver such calculation to the Trustee) and
pay all interest accrued and unpaid on the Debentures, including any Additional
Interest and Compounded Interest (together, "Deferred Interest") that shall be
payable to the holders of the
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Debentures in whose names the Debentures are registered in the Debenture
Register on the first record date after the end of the Extension Period. Before
the termination of any Extension Period, the Company may further extend such
period, provided that such period together with all such further extensions
thereof shall not exceed 20 consecutive quarters, or extend beyond the Maturity
Date of the Debentures. Upon the termination of any Extension Period and upon
the payment of all Deferred Interest then due, the Company may commence a new
Extension Period, subject to the foregoing requirements. No interest shall be
due and payable during an Extension Period, except at the end thereof, but the
Company may prepay at any time all or any portion of the interest accrued during
an Extension Period.
SECTION 4.2. NOTICE OF EXTENSION.
(a) If the Property Trustee is the only registered holder of the Debentures
at the time the Company selects an Extension Period, the Company shall give
written notice to the Administrative Trustees, the Property Trustee and the
Trustee of its selection of such Extension Period two Business Days before the
earlier of (i) the next succeeding date on which Distributions on the Trust
Securities issued by the Trust are payable; or (ii) the date the Trust is
required to give notice of the record date, or the date such Distributions are
payable, to the Nasdaq National Market or other applicable
self-regulatory organization or to holders of the Preferred Securities issued by
the Trust, but in any event at least one Business Day before such record date.
(b) If the Property Trustee is not the only holder of the Debentures at the
time the Company selects an Extension Period, the Company shall give the holders
of the Debentures and the Trustee written notice of its selection of such
Extension Period at least two Business Days before the earlier of (i) the next
succeeding Interest Payment Date; or (ii) the date the Company is required to
give notice of the record or payment date of such interest payment to the Nasdaq
National Market or other applicable self-regulatory organization or to holders
of the Debentures.
(c) The quarter in which any notice is given pursuant to paragraphs (a) or
(b) of this Section 4.2 shall be counted as one of the 20 quarters permitted in
the maximum Extension Period permitted under Section 4.1.
SECTION 4.3. LIMITATION ON TRANSACTIONS.
If (i) the Company shall exercise its right to defer payment of interest as
provided in Section 4.1; or (ii) there shall have occurred any Event of Default,
then (a) the Company shall not declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock; (b) the Company
shall not make any payment of interest, principal or premium, if any, or repay,
repurchase or redeem any debt securities issued by the Company which rank pari
passu with or junior to the Debentures; or make any guarantee payments with
respect to any guarantee by the Company of the debt securities of any subsidiary
of the Company if such guarantee ranks pari passu with or junior in interest to
the Debentures; provided, however, that notwithstanding the foregoing the
Company may make payments pursuant to its obligations under the Preferred
Securities Guarantee; and (c) the Company shall not redeem, purchase or acquire
less than all of the Outstanding Debentures or any of the Preferred Securities.
ARTICLE V.
PARTICULAR COVENANTS OF THE COMPANY
SECTION 5.1. PAYMENT OF PRINCIPAL AND INTEREST.
The Company shall duly and punctually pay or cause to be paid the principal
of and interest on the Debentures at the time and place and in the manner
provided herein. Each such payment of the principal of and interest on the
Debentures shall relate only to the Debentures, shall not be combined with any
other payment of the principal of or interest on any other obligation of the
Company, and shall be clearly and unmistakably identified as pertaining to the
Debentures.
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SECTION 5.2. MAINTENANCE OF AGENCY.
So long as any of the Debentures remain Outstanding, the Company shall
maintain an office or agency in Boston, Massachusetts, and at such other
location or locations as may be designated as provided in this Section 5.2,
where (i) Debentures may be presented for payment; (ii) Debentures may be
presented as hereinabove authorized for registration of transfer and exchange;
and (iii) notices and demands to or upon the Company in respect of the
Debentures and this Indenture may be given or served, such designation to
continue with respect to such office or agency until the Company shall, by
written notice signed by its President or a Vice President and delivered to the
Trustee, designate some other office or agency for such purposes or any of them.
If at any time the Company shall fail to maintain any such required office or
agency or shall fail to furnish the Trustee with the address thereof, such
presentations, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its agent
to receive all such presentations, notices and demands. In addition to any such
office or agency, the Company may from time to time designate one or more
offices or agencies outside of Boston, Massachusetts, where the Debentures may
be presented for registration or transfer and for exchange in the manner
provided herein, and the Company may from time to time rescind such designation
as the Company may deem desirable or expedient; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain any such office or agency in Boston, Massachusetts, for
the purposes above mentioned. The Company shall give the Trustee prompt written
notice of any such designation or rescission thereof.
SECTION 5.3. PAYING AGENTS.
(a) The Property Trustee shall act as the Paying Agent. If the Company shall
appoint one or more paying agents for the Debentures, other than the Property
Trustee, the Company shall cause each such paying agent to execute and deliver
to the Trustee an instrument in which such agent shall agree with the Trustee,
subject to the provisions of this Section 5.3:
(i) that it shall hold all sums held by it as such agent for the payment
of the principal of or interest on the Debentures (whether such sums have
been paid to it by the Company or by any other obligor of such Debentures)
in trust for the benefit of the Persons entitled thereto;
(ii) that it shall give the Trustee notice of any failure by the Company
(or by any other obligor of such Debentures) to make any payment of the
principal of or interest on the Debentures when the same shall be due and
payable;
(iii) that it shall, at any time during the continuance of any failure
referred to in the preceding paragraph (a)(ii) above, upon the written
request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent; and
(iv) that it shall perform all other duties of Paying Agent as set forth
in this Indenture.
(b) If the Company shall act as its own Paying Agent with respect to the
Debentures, it shall on or before each due date of the principal of or interest
on such Debentures, set aside, segregate and hold in trust for the benefit of
the Persons entitled thereto a sum sufficient to pay such principal or interest
so becoming due on Debentures until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and shall promptly notify the Trustee
of such action, or any failure (by it or any other obligor on such Debentures)
to take such action. Whenever the Company shall have one or more Paying Agents
for the Debentures, it shall, prior to each due date of the principal of or
interest on any Debentures, deposit with the Paying Agent a sum sufficient to
pay the principal or interest so becoming due, such sum to be held in trust for
the benefit of the Persons entitled to such principal or interest, and (unless
such Paying Agent is the Trustee) the Company shall promptly notify the Trustee
of this action or failure so
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to act.
(c) Notwithstanding anything in this Section 5.3 to the contrary, (i) the
agreement to hold sums in trust as provided in this Section 5.3 is subject to
the provisions of Section 13.3 and 13.4; and (ii) the Company may at any time,
for the purpose of obtaining the satisfaction and discharge of this Indenture or
for any other purpose, pay, or direct any Paying Agent to pay, to the Trustee
all sums held in trust by the Company or such Paying Agent, such sums to be held
by the Trustee upon the same terms and conditions as those upon which such sums
were held by the Company or such Paying Agent; and, upon such payment by any
Paying Agent to the Trustee, such Paying Agent shall be released from all
further liability with respect to such money.
SECTION 5.4. APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE.
The Company, whenever necessary to avoid or fill a vacancy in the office of
Trustee, shall appoint, in the manner provided in Section 9.11, a Trustee, so
that there shall at all times be a Trustee hereunder.
SECTION 5.5. COMPLIANCE WITH CONSOLIDATION PROVISIONS.
The Company shall not, while any of the Debentures remain Outstanding,
consolidate with, or merge into, or merge into itself, or sell or convey all or
substantially all of its property to any other company unless the provisions of
Article XII hereof are complied with.
SECTION 5.6. LIMITATION ON TRANSACTIONS.
If Debentures are issued to the Trust or a trustee of the Trust in
connection with the issuance of Trust Securities by the Trust and (i) there
shall have occurred any event that would constitute an Event of Default; (ii)
the Company shall be in default with respect to its payment of any obligations
under the Preferred Securities Guarantee relating to the Trust; or (iii) the
Company shall have given notice of its election to defer payments of interest on
such Debentures by extending the interest payment period as provided in this
Indenture and such Extension Period, or any extension thereof, shall be
continuing, then (a) the Company shall not declare or pay any dividend on, make
any distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock; (b) the Company
shall not make any payment of principal, interest or premium, if any, or repay,
repurchase or redeem any debt securities issued by the Company which rank pari
passu with or junior to the Debentures; provided, however, that the Company may
make payments pursuant to its obligations under the Preferred Securities
Guarantee; and (c) the Company shall not redeem, purchase or acquire less than
all of the Outstanding Debentures or any of the Preferred Securities.
SECTION 5.7. COVENANTS AS TO THE TRUST.
For so long as the Trust Securities of the Trust remain outstanding, the
Company shall (i) maintain 100% direct or indirect ownership of the Common
Securities of the Trust; provided, however, that any permitted successor of the
Company under this Indenture may succeed to the Company's ownership of the
Common Securities; (ii) not voluntarily terminate, wind up or liquidate the
Trust, except upon prior approval of the Federal Reserve if then so required
under applicable capital guidelines or policies of the Federal Reserve; (iii)
use its reasonable efforts to cause the Trust (a) to remain a business trust,
except in connection with a distribution of Debentures, the redemption of all of
the Trust Securities of the Trust or certain mergers, consolidations or
amalgamations, each as permitted by the Trust Agreement; and (b) to otherwise
continue not to be treated as an association taxable as a corporation or
partnership for United States federal income tax purposes; and (iv) use its
reasonable efforts to cause each holder of Trust Securities to be treated as
owning an individual beneficial interest in the Debentures. In connection with
the distribution of the Debentures to the holders of the Preferred Securities
issued by the Trust upon a Dissolution Event, the Company shall
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use its best efforts to list such Debentures on the Nasdaq
National Market or on such other exchange as the Preferred Securities are then
listed.
SECTION 5.8. COVENANTS AS TO PURCHASES.
Except upon the exercise by the Company of its right to redeem the
Debentures pursuant to Section 3.2 upon the occurrence and continuation of a
Special Event, the Company shall not purchase any Debentures, in whole or in
part, from the Trust prior to June 30, 2003.
ARTICLE VI.
DEBENTUREHOLDERS' LISTS AND REPORTS
BY THE COMPANY AND THE TRUSTEE
SECTION 6.1. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF DEBENTUREHOLDERS.
The Company shall furnish or cause to be furnished to the Trustee (a) on a
quarterly basis on each regular record date (as described in Section 2.5) a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the holders of the Debentures as of such regular record date,
provided that the Company shall not be obligated to furnish or cause to furnish
such list at any time that the list shall not differ in any respect from the
most recent list furnished to the Trustee by the Company (in the event the
Company fails to provide such list on a monthly basis, the Trustee shall be
entitled to rely on the most recent list provided by the Company); and (b) at
such other times as the Trustee may request in writing within 30 days after the
receipt by the Company of any such request, a list of similar form and content
as of a date not more than 15 days prior to the time such list is furnished;
provided, however, that, in either case, no such list need be furnished if the
Trustee shall be the Debenture Registrar.
SECTION 6.2. PRESERVATION OF INFORMATION COMMUNICATIONS WITH DEBENTUREHOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of the holders of
Debentures contained in the most recent list furnished to it as provided in
Section 6.1 and as to the names and addresses of holders of Debentures received
by the Trustee in its capacity as Debenture Registrar for the Debentures (if
acting in such capacity).
(b) The Trustee may destroy any list furnished to it as provided in Section
6.1 upon receipt of a new list so furnished.
(c) Debentureholders may communicate as provided in Section 312(b) of the
Trust Indenture Act with other Debentureholders with respect to their rights
under this Indenture or under the Debentures.
SECTION 6.3. REPORTS BY THE COMPANY.
(a) The Company covenants and agrees to file with the Trustee, within 15
days after the Company is required to file the same with the Commission, copies
of the annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may from time
to time by rules and regulations prescribe) that the Company may be required to
file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange
Act; or, if the Company is not required to file information, documents or
reports pursuant to either of such sections, then to file with the Trustee and
the Commission, in accordance with the rules and regulations prescribed from
time to time by the Commission, such of the supplementary and periodic
information, documents and reports that
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may be required pursuant to Section 13 of the Exchange Act in respect of a
security listed and registered on a national securities exchange as may be
prescribed from time to time in such rules and regulations.
(b) The Company covenants and agrees to file with the Trustee and the
Commission, in accordance with the rules and regulations prescribed from to time
by the Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants provided
for in this Indenture as may be required from time to time by such rules and
regulations.
(c) The Company covenants and agrees to transmit by mail, first class
postage prepaid, or reputable overnight delivery service that provides for
evidence of receipt, to the Debentureholders, as their names and addresses
appear upon the Debenture Register, within 30 days after the filing thereof with
the Trustee, such summaries of any information, documents and reports required
to be filed by the Company pursuant to subsections (a) and (b) of this Section
6.3 as may be required by rules and regulations prescribed from time to time by
the Commission.
SECTION 6.4. REPORTS BY THE TRUSTEE.
(a) On or before July 15 in each year in which any of the Debentures are
Outstanding, the Trustee shall transmit by mail, first class postage prepaid, to
the Debentureholders, as their names and addresses appear upon the Debenture
Register, a brief report dated as of the preceding May 15, if and to the extent
required under Section 313(a) of the Trust Indenture Act.
(b) The Trustee shall comply with Section 313(b) and 313(c) of the Trust
Indenture Act.
(c) A copy of each such report shall, at the time of such transmission to
Debentureholders, be filed by the Trustee with the Company, with each stock
exchange upon which any Debentures are listed (if so listed) and also with the
Commission. The Company agrees to notify the Trustee when any Debentures become
listed on any stock exchange.
ARTICLE VII.
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
ON EVENT OF DEFAULT
SECTION 7.1. EVENTS OF DEFAULT.
(a) Whenever used herein with respect to the Debentures, "Event of Default"
means any one or more of the following events that has occurred and is
continuing:
(i) the Company defaults in the payment of any installment of interest
upon any of the Debentures, as and when the same shall become due and
payable, and continuance of such default for a period of 30 days; provided,
however, that a valid extension of an interest payment period by the Company
in accordance with the terms of this Indenture shall not constitute a
default in the payment of interest for this purpose;
(ii) the Company defaults in the payment of the principal on the
Debentures as and when the same shall become due and payable whether at
maturity, upon redemption, by declaration or otherwise; provided, however,
that a valid extension of the maturity of such Debentures in accordance with
the terms of this Indenture shall not constitute a default in the payment of
principal;
(iii) the Company fails to observe or perform any other of its covenants
or agreements with respect to the Debentures for a period of 90 days after
the date on which written notice of such failure, requiring the same to be
remedied and stating that such notice is a "Notice of Default" hereunder,
shall have been given to the Company
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by the Trustee, by registered or certified mail, or to the Company and the
Trustee by the holders of at least 25% in principal amount of the Debentures
at the time Outstanding;
(iv) the Company pursuant to or within the meaning of any Bankruptcy Law
(i) commences a voluntary case; (ii) consents to the entry of an order for
relief against it in an involuntary case; (iii) consents to the appointment
of a Custodian of it or for all or substantially all of its property; or
(iv) makes a general assignment for the benefit of its creditors;
(v) a court of competent jurisdiction enters an order under any
Bankruptcy Law that (i) is for relief against the Company in an involuntary
case; (ii) appoints a Custodian of the Company for all or substantially all
of its property; or (iii) orders the liquidation of the Company, and the
order or decree remains unstayed and in effect for 90 days; or
(vi) the Trust shall have voluntarily or involuntarily dissolved,
wound-up its business or otherwise terminated its existence except in
connection with (i) the distribution of Debentures to holders of Trust
Securities in liquidation of their interests in the Trust; (ii) the
redemption of all of the outstanding Trust Securities of the Trust; or (iii)
certain mergers, consolidations or amalgamations, each as permitted by the
Trust Agreement.
(b) In each and every such case, unless the principal of all the Debentures
shall have already become due and payable, either the Trustee or the holders of
not less than 25% in aggregate principal amount of the Debentures then
Outstanding hereunder, by notice in writing to the Company (and to the Trustee
if given by such Debentureholders) may declare the principal of all the
Debentures to be due and payable immediately, and upon any such declaration the
same shall become and shall be immediately due and payable, notwithstanding
anything contained in this Indenture or in the Debentures.
(c) At any time after the principal of the Debentures shall have been so
declared due and payable, and before any judgment or decree for the payment of
the moneys due shall have been obtained or entered as hereinafter provided, the
holders of a majority in aggregate principal amount of the Debentures then
Outstanding hereunder, by written notice to the Company and the Trustee, may
rescind and annul such declaration and its consequences if: (i) the Company has
paid or deposited with the Trustee a sum sufficient to pay all matured
installments of interest upon all the Debentures and the principal of any and
all Debentures that shall have become due otherwise than by acceleration (with
interest upon such principal, and upon overdue installments of interest, at the
rate per annum expressed in the Debentures to the date of such payment or
deposit) and the amount payable to the Trustee under Section 9.7; and (ii) any
and all Events of Default under this Indenture, other than the nonpayment of
principal on Debentures that shall not have become due by their terms, shall
have been remedied or waived as provided in Section 7.6. No such rescission and
annulment shall extend to or shall affect any subsequent default or impair any
right consequent thereon.
(d) In case the Trustee shall have proceeded to enforce any right with
respect to Debentures under this Indenture and such proceedings shall have been
discontinued or abandoned because of such rescission or annulment or for any
other reason or shall have been determined adversely to the Trustee, then and in
every such case the Company and the Trustee shall be restored respectively to
their former positions and rights hereunder, and all rights, remedies and powers
of the Company and the Trustee shall continue as though no such proceedings had
been taken.
SECTION 7.2. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
(a) The Company covenants that (1) in case it shall default in the payment
of any installment of interest on any of the Debentures, and such default shall
have continued for a period of 90 Business Days; or (2) in case it shall default
in the payment of the principal of any of the Debentures when the same shall
have become due and payable, whether upon maturity of the Debentures or upon
redemption or upon declaration or otherwise, then, upon demand of the Trustee,
the Company shall pay to the Trustee, for the benefit of the holders of the
Debentures, the whole amount that
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then shall have been become due and payable on all such Debentures for principal
or interest, or both, as the case may be, with interest upon the overdue
principal and upon overdue installments of interest at the rate per annum
expressed in the Debentures; and (if the Debentures are held by the Trust or a
trustee of the Trust, without duplication of any other amounts paid by the Trust
or trustee in respect thereof) upon overdue installments of interest at the rate
per annum expressed in the Debentures; and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection, and
the amount payable to the Trustee under Section 9.7.
(b) If the Company shall fail to pay such amounts set forth in Section
7.2(a) forthwith upon such demand, the Trustee, in its own name and as trustee
of an express trust, shall be entitled and empowered to institute any action or
proceedings at law or in equity for the collection of the sums so due and
unpaid, and may prosecute any such action or proceeding to judgment or final
decree, and may enforce any such judgment or final decree against the Company or
other obligor upon the Debentures and collect the moneys adjudged or decreed to
be payable in the manner provided by law out of the property of the Company or
other obligor upon the Debentures, wherever situated.
(c) In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, readjustment, arrangement, composition or judicial proceedings
affecting the Company or the creditors or property thereof, the Trustee shall
have power to intervene in such proceedings and take any action therein that may
be permitted by the court and shall (except as may be otherwise provided by law)
be entitled to file such proofs of claim and other papers and documents as may
be necessary or advisable in order to have the claims of the Trustee and of the
holders of the Debentures allowed for the entire amount due and payable by the
Company under this Indenture at the date of institution of such proceedings and
for any additional amount that may become due and payable by the Company after
such date, and to collect and receive any moneys or other property payable or
deliverable on any such claim, and to distribute the same after the deduction of
the amount payable to the Trustee under Section 9.7; and any receiver, assignee
or trustee in bankruptcy or reorganization is hereby authorized by each of the
holders of the Debentures to make such payments to the Trustee, and, in the
event that the Trustee shall consent to the making of such payments directly to
such Debentureholders, to pay to the Trustee any amount due it under Section
9.7.
(d) All rights of action and of asserting claims under this Indenture, or
under any of the terms established with respect to Debentures, may be enforced
by the Trustee without the possession of any of such Debentures, or the
production thereof at any trial or other proceeding relative thereto, and any
such suit or proceeding instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall, after
provision for payment to the Trustee of any amounts due under Section 9.7, be
for the ratable benefit of the holders of the Debentures. In case of an Event of
Default hereunder, the Trustee may in its discretion proceed to protect and
enforce the rights vested in it by this Indenture by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
of such rights, either at law or in equity or in bankruptcy or otherwise,
whether for the specific enforcement of any covenant or agreement contained in
this Indenture or in aid of the exercise of any power granted in this Indenture,
or to enforce any other legal or equitable right vested in the Trustee by this
Indenture or by law. Nothing contained herein shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Debentureholder any plan of reorganization, arrangement, adjustment or
composition affecting the Debentures or the rights of any holder thereof or to
authorize the Trustee to vote in respect of the claim of any Debentureholder in
any such proceeding.
SECTION 7.3. APPLICATION OF MONEYS COLLECTED.
Any moneys collected by the Trustee pursuant to this Article VII with
respect to the Debentures shall be applied in the following order, at the date
or dates fixed by the Trustee and, in case of the distribution of such moneys on
account of principal or interest, upon presentation of the Debentures, and
notation thereon of the payment, if only partially paid, and upon surrender
thereof if fully paid:
FIRST: To the payment of costs and expenses of collection and of all
amounts payable to the Trustee under
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Section 9.7;
SECOND: To the payment of all Senior Indebtedness of the Company if and
to the extent required by Article XVI; and
THIRD: To the payment of the amounts then due and unpaid upon the
Debentures for principal and interest, in respect of which or for the
benefit of which such money has been collected, ratably, without preference
or priority of any kind, according to the amounts due and payable on such
Debentures for principal and interest, respectively.
SECTION 7.4. LIMITATION ON SUITS.
(a) Except as provided in Section 15.13 hereof, no holder of any Debenture
shall have any right by virtue or by availing of any provision of this Indenture
to institute any suit, action or proceeding in equity or at law upon or under or
with respect to this Indenture or for the appointment of a receiver or trustee,
or for any other remedy hereunder, unless (i) such holder previously shall have
given to the Trustee written notice of an Event of Default and of the
continuance thereof with respect to the Debentures specifying such Event of
Default, as hereinbefore provided; (ii) the holders of not less than 25% in
aggregate principal amount of the Debentures then Outstanding shall have made
written request upon the Trustee to institute such action, suit or proceeding in
its own name as trustee hereunder; (iii) such holder or holders shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby; and (iv) the
Trustee for 60 days after its receipt of such notice, request and offer of
indemnity, shall have failed to institute any such action, suit or proceeding;
and (v) during such 60 day period, the holders of a majority in principal amount
of the Debentures do not give the Trustee a direction inconsistent with the
request.
(b) Notwithstanding anything contained herein to the contrary or any other
provisions of this Indenture, the right of any holder of the Debentures to
receive payment of the principal of and interest on the Debentures, as therein
provided, on or after the respective due dates expressed in such Debenture (or
in the case of redemption, on the redemption date), or to institute suit for the
enforcement of any such payment on or after such respective dates or redemption
date, shall not be impaired or affected without the consent of such holder and
by accepting a Debenture hereunder it is expressly understood, intended and
covenanted by the taker and holder of every Debenture with every other such
taker and holder and the Trustee, that no one or more holders of Debentures
shall have any right in any manner whatsoever by virtue or by availing of any
provision of this Indenture to affect, disturb or prejudice the rights of the
holders of any other of such Debentures, or to obtain or seek to obtain priority
over or preference to any other such holder, or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all holders of Debentures. For the protection and enforcement
of the provisions of this Section 7.4, each and every Debentureholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.
SECTION 7.5. RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER.
(a) Except as otherwise provided in Section 2.9, all powers and remedies
given by this Article VII to the Trustee or to the Debentureholders shall, to
the extent permitted by law, be deemed cumulative and not exclusive of any other
powers and remedies available to the Trustee or the holders of the Debentures,
by judicial proceedings or otherwise, to enforce the performance or observance
of the covenants and agreements contained in this Indenture or otherwise
established with respect to such Debentures.
(b) No delay or omission of the Trustee or of any holder of any of the
Debentures to exercise any right or power accruing upon any Event of Default
occurring and continuing as aforesaid shall impair any such right or power, or
shall be construed to be a waiver of any such default or an acquiescence
therein; and, subject to the provisions of Section
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7.4, every power and remedy given by this Article VII or by law to the Trustee
or the Debentureholders may be exercised from time to time, and as often as
shall be deemed expedient, by the Trustee or by the Debentureholders.
SECTION 7.6. CONTROL BY DEBENTUREHOLDERS.
The holders of a majority in aggregate principal amount of the Debentures at
the time Outstanding, determined in accordance with Section 10.4, shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee; provided, however, that such direction shall not be in conflict
with any rule of law or with this Indenture. Subject to the provisions of
Section 9.1, the Trustee shall have the right to decline to follow any such
direction if the Trustee in good faith shall, by a Responsible Officer or
Officers of the Trustee, determine that the proceeding so directed would involve
the Trustee in personal liability. The holders of a majority in aggregate
principal amount of the Debentures at the time Outstanding affected thereby,
determined in accordance with Section 10.4, may on behalf of the holders of all
of the Debentures waive any past default in the performance of any of the
covenants contained herein and its consequences, except (i) a default in the
payment of the principal of or interest on, any of the Debentures as and when
the same shall become due by the terms of such Debentures otherwise than by
acceleration (unless such default has been cured and a sum sufficient to pay all
matured installments of principal and interest has been deposited with the
Trustee (in accordance with Section 7.1(c)); (ii) a default in the covenants
contained in Section 5.6; or (iii) in respect of a covenant or provision hereof
which cannot be modified or amended without the consent of the holder of each
Outstanding Debenture affected; provided, however, that if the Debentures are
held by the Trust or a trustee of the Trust, such waiver or modification to such
waiver shall not be effective until the holders of a majority in liquidation
preference of Trust Securities of the Trust shall have consented to such waiver
or modification to such waiver; provided further, that if the Debentures are
held by the Trust or a trustee of the Trust, and if the consent of the holder of
each Outstanding Debenture is required, such waiver shall not be effective until
each holder of the Trust Securities of the Trust shall have consented to such
waiver. Upon any such waiver, the default covered thereby shall be deemed to be
cured for all purposes of this Indenture and the Company, the Trustee and the
holders of the Debentures shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 7.7. UNDERTAKING TO PAY COSTS.
All parties to this Indenture agree, and each holder of any Debentures by
such holder's acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any action
taken or omitted by it as Trustee, the filing by any party litigant in such suit
of an undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 7.7 shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Debentureholder, or group of
Debentureholders holding more than 10% in aggregate principal amount of the
Outstanding Debentures, or to any suit instituted by any Debentureholder for the
enforcement of the payment of the principal of or interest on the Debentures, on
or after the respective due dates expressed in such Debenture or established
pursuant to this Indenture.
ARTICLE VIII.
FORM OF DEBENTURE AND ORIGINAL ISSUE
SECTION 8.1. FORM OF DEBENTURE.
The Debenture and the Trustee's Certificate of Authentication to be endorsed
thereon are to be substantially in the forms contained as Exhibit A attached
hereto and incorporated herein by reference.
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SECTION 8.2. ORIGINAL ISSUE OF DEBENTURES.
Debentures in the aggregate principal amount of $11,340,210 may, upon
execution of this Indenture, be executed by the Company and delivered to the
Trustee for authentication. If the Underwriters exercise their Option and there
is an Option Closing Date (as such terms are defined in Underwriting Agreement,
dated , 1998, by and among the Company, the Trust and Tucker Anthony
Incorporated and McConnell, Budd & Downes, Inc., for themselves and as
representatives of the Underwriters named therein) then, on such Option Closing
Date, Debentures in the additional aggregate principal amount of $1,701,040 may
be executed by the Company and delivered to the Trustee for authentication. In
either such event, the Trustee shall thereupon authenticate and deliver said
Debentures to or upon the written order of the Company, signed by its Chairman,
its Vice Chairman, its President, or any Vice President and its Treasurer or an
Assistant Treasurer, without any further action by the Company.
ARTICLE IX.
CONCERNING THE TRUSTEE
SECTION 9.1. CERTAIN DUTIES AND RESPONSIBILITIES TRUSTEE.
(a) The Trustee, prior to the occurrence of an Event of Default and after
the curing of all Events of Default that may have occurred, shall undertake to
perform with respect to the Debentures such duties and only such duties as are
specifically set forth in this Indenture, and no implied covenants shall be read
into this Indenture against the Trustee. In case an Event of Default has
occurred that has not been cured or waived, the Trustee shall exercise such of
the rights and powers vested in it by this Indenture, and use the same degree of
care and skill in their exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
(b) No provision of this Indenture shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act,
or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after the curing
or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Trustee shall with respect to
the Debentures be determined solely by the express provisions of this
Indenture, and the Trustee shall not be liable with respect to the
Debentures except for the performance of such duties and obligations as are
specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(B) in the absence of bad faith on the part of the Trustee, the
Trustee may with respect to the Debentures conclusively rely, as to the
truth of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but in the case of any
such certificates or opinions that by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty
to examine the same to determine whether or not they conform to the
requirements of this Indenture;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer or Responsible Officers of the Trustee,
unless it shall be proved that the Trustee was negligent in ascertaining the
pertinent facts;
(iii) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the holders of not less than a majority in principal amount of the
Debentures at the time Outstanding relating to the time, method and place of
conducting any proceeding for any remedy available
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to the Trustee, or exercising any trust or power conferred upon the Trustee
under this Indenture with respect to the Debentures; and
(iv) none of the provisions contained in this Indenture shall require
the Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if there is reasonable ground for
believing that the repayment of such funds or liability is not reasonably
assured to it under the terms of this Indenture or adequate indemnity
against such risk is not reasonably assured to it.
SECTION 9.2. NOTICE OF DEFAULTS.
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Debentures, the Trustee shall transmit by mail to all holders of the Debentures,
as their names and addresses appear in the Debenture Register, notice of such
default, unless such default shall have been cured or waived; provided, however,
that, except in the case of a default in the payment of the principal or
interest (including any Additional Interest) on any Debenture, the Trustee shall
be protected in withholding such notice if and so long as the board of
directors, the executive committee or a trust committee of the directors and/or
Responsible Officers of the Trustee determines in good faith that the
withholding of such notice is in the interests of the holders of such
Debentures; and provided, further, that in the case of any default of the
character specified in section 7.1(a)(iii), no such notice to holders of
Debentures need be sent until at least 30 days after the occurrence thereof. For
the purposes of this Section 9.2, the term "default" means any event which is,
or after notice or lapse of time or both, would become, an Event of Default with
respect to the Debentures.
SECTION 9.3. CERTAIN RIGHTS OF TRUSTEE.
Except as otherwise provided in Section 9.1:
(a) The Trustee may rely and shall be protected in acting or refraining from
acting upon any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, approval, bond, security or other paper or
document believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(b) Any request, direction, order or demand of the Company mentioned herein
shall be sufficiently evidenced by a Board Resolution or an instrument signed in
the name of the Company by the President or any Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
thereof (unless other evidence in respect thereof is specifically prescribed
herein);
(c) The Trustee shall not be deemed to have knowledge of a default or an
Event of Default, other than an Event of Default specified in Section 7.1(a)(i);
or (ii), unless and until it receives written notification of such Event of
Default from the Company or by holders of at least 25% of the aggregate
principal amount of the Debentures at the time Outstanding (determined as
provided in Section 10.4);
(d) The Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted hereunder in
good faith and in reliance thereon;
(e) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request, order or direction of
any of the Debentureholders, pursuant to the provisions of this Indenture,
unless such Debentureholders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities that may be
incurred therein or thereby; nothing contained herein shall, however, relieve
the Trustee of the obligation, upon the occurrence of an Event of Default (that
has not been cured or waived) to exercise with respect
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to the Debentures such of the rights and powers vested in it by this Indenture,
and to use the same degree of care and skill in their exercise, as a prudent man
would exercise or use under the circumstances in the conduct of his own affairs;
(f) The Trustee shall not be liable for any action taken or omitted to be
taken by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture;
(g) The Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond, security, or
other papers or documents, unless requested in writing so to do by the holders
of not less than a majority in principal amount of the Outstanding Debentures
(determined as provided in Section 10.4); provided, however, that if the payment
within a reasonable time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such investigation is, in the
opinion of the Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such costs, expenses or liabilities as a condition
to so proceeding. The reasonable expense of every such examination shall be paid
by the Company or, if paid by the Trustee, shall be repaid by the Company upon
demand; and
(h) The Trustee may execute any of the trusts or powers hereunder or perform
any duties hereunder either directly or by or through agents or attorneys and
the Trustee shall not be responsible for any misconduct or negligence on the
part of any agent or attorney appointed with due care by it hereunder.
SECTION 9.4. TRUSTEE NOT RESPONSIBLE FOR RECITALS, ETC.
(a) The Recitals contained herein and in the Debentures shall be taken as
the statements of the Company, and the Trustee assumes no responsibility for the
correctness of the same.
(b) The Trustee makes no representations as to the validity or sufficiency
of this Indenture or of the Debentures.
(c) The Trustee shall not be accountable for the use or application by the
Company of any of the Debentures or of the proceeds of such Debentures, or for
the use or application of any moneys paid over by the Trustee in accordance with
any provision of this Indenture, or for the use or application of any moneys
received by any Paying Agent other than the Trustee.
SECTION 9.5. MAY HOLD DEBENTURES.
The Trustee or any Paying Agent or Debenture Registrar for the Debentures,
in its individual or any other capacity, may become the owner or pledgee of
Debentures with the same rights it would have if it were not Trustee, Paying
Agent or Debenture Registrar.
SECTION 9.6. MONEYS HELD IN TRUST.
Subject to the provisions of Section 13.5, all moneys received by the
Trustee shall, until used or applied as herein provided, be held in trust for
the purposes for which they were received, but need not be segregated from other
funds except to the extent required by law. The Trustee shall be under no
liability for interest on any moneys received by it hereunder except such as it
may agree with the Company to pay thereon.
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SECTION 9.7. COMPENSATION AND REIMBURSEMENT.
(a) The Company covenants and agrees to pay to the Trustee, and the Trustee
shall be entitled to, such reasonable compensation (which shall not be limited
by any provision of law in regard to the compensation of a trustee of an express
trust), as the Company and the Trustee may from time to time agree in writing,
for all services rendered by it in the execution of the trusts hereby created
and in the exercise and performance of any of the powers and duties hereunder of
the Trustee, and, except as otherwise expressly provided herein, the Company
shall pay or reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Indenture (including the reasonable compensation
and the expenses and disbursements of its counsel and of all Persons not
regularly in its employ) except any such expense, disbursement or advance as may
arise from its negligence or bad faith. The Company also covenants to indemnify
the Trustee (and its officers, agents, directors and employees) for, and to hold
it harmless against, any loss, liability or expense incurred without negligence
or bad faith on the part of the Trustee and arising out of or in connection with
the acceptance or administration of this trust, including the costs and expenses
of defending itself against any claim of liability in the premises.
(b) The obligations of the Company under this Section 9.7 to compensate and
indemnify the Trustee and to pay or reimburse the Trustee for expenses,
disbursements and advances shall constitute additional indebtedness hereunder.
Such additional indebtedness shall be secured by a lien prior to that of the
Debentures upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the benefit of the holders of particular
Debentures.
SECTION 9.8. RELIANCE ON OFFICERS' CERTIFICATE.
Except as otherwise provided in Section 9.1, whenever in the administration
of the provisions of this Indenture the Trustee shall deem it necessary or
desirable that a matter be proved or established prior to taking or suffering or
omitting to take any action hereunder, such matter (unless other evidence in
respect thereof be herein specifically prescribed) may, in the absence of
negligence or bad faith on the part of the Trustee, be deemed to be conclusively
proved and established by an Officers' Certificate delivered to the Trustee and
such certificate, in the absence of negligence or bad faith on the part of the
Trustee, shall be full warrant to the Trustee for any action taken, suffered or
omitted to be taken by it under the provisions of this Indenture upon the faith
thereof.
SECTION 9.9. DISQUALIFICATION; CONFLICTING INTERESTS.
If the Trustee has or shall acquire any "conflicting interest" within the
meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the
Company shall in all respects comply with the provisions of Section 310(b) of
the Trust Indenture Act.
SECTION 9.10. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee with respect to the Debentures issued
hereunder which shall at all times be a corporation organized and doing business
under the laws of the United States of America or any state or territory thereof
or of the District of Columbia, or a corporation or other Person permitted to
act as trustee by the Commission, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$50,000,000, and subject to supervision or examination by federal, state,
territorial, or District of Columbia authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purposes of
this Section 9.10, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. The Company may not, nor may any Person
directly or indirectly controlling, controlled by, or under common control with
the Company, serve as Trustee. In case at any time the Trustee shall cease to be
eligible
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in accordance with the provisions of this Section 9.10, the Trustee shall resign
immediately in the manner and with the effect specified in Section 9.11.
SECTION 9.11. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) The Trustee or any successor hereafter appointed, may at any time resign
by giving written notice thereof to the Company and by transmitting notice of
resignation by mail, first class postage prepaid, to the Debentureholders, as
their names and addresses appear upon the Debenture Register. Upon receiving
such notice of resignation, the Company shall promptly appoint a successor
trustee with respect to Debentures by written instrument, in duplicate, executed
by order of the Board of Directors, one copy of which instrument shall be
delivered to the resigning Trustee and one copy to the successor trustee. If no
successor trustee shall have been so appointed and have accepted appointment
within 30 days after the mailing of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor trustee with respect to Debentures, or any Debentureholder who has
been a bona fide holder of a Debenture or Debentures for at least six months
may, subject to the provisions of Section 9.10, on behalf of himself and all
others similarly situated, petition any such court for the appointment of a
successor trustee. Such court may thereupon after such notice, if any, as it may
deem proper and prescribe, appoint a successor trustee.
(b) In case at any time any one of the following shall occur:
(i) the Trustee shall fail to comply with the provisions of Section 9.9
after written request therefor by the Company or by any Debentureholder who
has been a bona fide holder of a Debenture or Debentures for at least six
months; or
(ii) the Trustee shall cease to be eligible in accordance with the
provisions of Section 9.10 and shall fail to resign after written request
therefor by the Company or by any such Debentureholder; or
(iii) the Trustee shall become incapable of acting, or shall be adjudged
a bankrupt or insolvent, or commence a voluntary bankruptcy proceeding, or a
receiver of the Trustee or of its property shall be appointed or consented
to, or any public officer shall take charge or control of the Trustee or of
its property or affairs for the purpose of rehabilitation, conservation or
liquidation, then, in any such case, the Company may remove the Trustee with
respect to all Debentures and appoint a successor trustee by written
instrument, in duplicate, executed by order of the Board of Directors, one
copy of which instrument shall be delivered to the Trustee so removed and
one copy to the successor trustee, or, subject to the provisions of Section
9.10, unless the Trustee's duty to resign is stayed as provided herein, any
Debentureholder who has been a bona fide holder of a Debenture or Debentures
for at least six months may, on behalf of that holder and all others
similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor trustee. Such
court may thereupon after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Debentures at the time Outstanding may at any time remove the Trustee by so
notifying the Trustee and the Company and may appoint a successor Trustee with
the consent of the Company.
(d) Any resignation or removal of the Trustee and appointment of a successor
trustee with respect to the Debentures pursuant to any of the provisions of this
Section 9.11 shall become effective upon acceptance of appointment by the
successor trustee as provided in Section 9.12.
(e) Any successor trustee appointed pursuant to this Section 9.11 may be
appointed with respect to the Debentures, and at any time there shall be only
one Trustee with respect to the Debentures.
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SECTION 9.12. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor trustee with respect
to the Debentures, every successor trustee so appointed shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the request of the
Company or the successor trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
trustee all the rights, powers, and trusts of the retiring Trustee and shall
duly assign, transfer and deliver to such successor trustee all property and
money held by such retiring Trustee hereunder.
(b) Upon request of any successor trustee, the Company shall execute any and
all instruments for more fully and certainly vesting in and confirming to such
successor trustee all such rights, powers and trusts referred to in paragraph
(a) of this Section 9.12.
(c) No successor trustee shall accept its appointment unless at the time of
such acceptance such successor trustee shall be qualified and eligible under
this Article IX.
(d) Upon acceptance of appointment by a successor trustee as provided in
this Section 9.12, the Company shall transmit notice of the succession of such
trustee hereunder by mail, first class postage prepaid, to the Debentureholders,
as their names and addresses appear upon the Debenture Register. If the Company
fails to transmit such notice within ten days after acceptance of appointment by
the successor trustee, the successor trustee shall cause such notice to be
transmitted at the expense of the Company.
SECTION 9.13. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the corporate trust business of the Trustee, shall be
the successor of the Trustee hereunder, provided that such corporation shall be
qualified under the provisions of Section 9.9 and eligible under the provisions
of Section 9.10, without the execution or filing of any paper or any further act
on the part of any of the parties hereto, anything herein to the contrary
notwithstanding. In case any Debentures shall have been authenticated, but not
delivered, by the Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Trustee may adopt such authentication and
deliver the Debentures so authenticated with the same effect as if such
successor Trustee had itself authenticated such Debentures.
SECTION 9.14. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with Section 311(a) of the Trust Indenture Act,
excluding any creditor relationship described in Section 311(b) of the Trust
Indenture Act. A Trustee who has resigned or been removed shall be subject to
Section 311(a) of the Trust Indenture Act to the extent included therein.
ARTICLE X.
CONCERNING THE DEBENTUREHOLDERS
SECTION 10.1. EVIDENCE OF ACTION BY HOLDERS.
(a) Whenever in this Indenture it is provided that the holders of a majority
or specified percentage in aggregate principal amount of the Debentures may take
any action (including the making of any demand or request, the giving of any
notice, consent or waiver or the taking of any other action), the fact that at
the time of taking any such action
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the holders of such majority or specified percentage have joined therein may be
evidenced by any instrument or any number of instruments of similar tenor
executed by such holders of Debentures in Person or by agent or proxy appointed
in writing.
(b) If the Company shall solicit from the Debentureholders any request,
demand, authorization, direction, notice, consent, waiver or other action, the
Company may, at its option, as evidenced by an Officers' Certificate, fix in
advance a record date for the determination of Debentureholders entitled to give
such request, demand, authorization, direction, notice, consent, waiver or other
action, but the Company shall have no obligation to do so. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other action may be given before or after the record date, but only
the Debentureholders of record at the close of business on the record date shall
be deemed to be Debentureholders for the purposes of determining whether
Debentureholders of the requisite proportion of Outstanding Debentures have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other action, and for that purpose the
Outstanding Debentures shall be computed as of the record date; provided,
however, that no such authorization, agreement or consent by such
Debentureholders on the record date shall be deemed effective unless it shall
become effective pursuant to the provisions of this Indenture not later than six
months after the record date.
SECTION 10.2. PROOF OF EXECUTION BY DEBENTUREHOLDERS.
Subject to the provisions of Section 9.1, proof of the execution of any
instrument by a Debentureholder (such proof shall not require notarization) or
his agent or proxy and proof of the holding by any Person of any of the
Debentures shall be sufficient if made in the following manner:
(a) The fact and date of the execution by any such Person of any instrument
may be proved in any reasonable manner acceptable to the Trustee.
(b) The ownership of Debentures shall be proved by the Debenture Register of
such Debentures or by a certificate of the Debenture Registrar thereof.
(c) The Trustee may require such additional proof of any matter referred to
in this Section 10.2 as it shall deem necessary.
SECTION 10.3. WHO MAY BE DEEMED OWNERS.
Prior to the due presentment for registration of transfer of any Debenture,
the Company, the Trustee, any Paying Agent, any Authenticating Agent and any
Debenture Registrar may deem and treat the Person in whose name such Debenture
shall be registered upon the books of the Company as the absolute owner of such
Debenture (whether or not such Debenture shall be overdue and notwithstanding
any notice of ownership or writing thereon made by anyone other than the
Debenture Registrar) for the purpose of receiving payment of or on account of
the principal of and interest on such Debenture (subject to Section 2.3) and for
all other purposes; and neither the Company nor the Trustee nor any Paying Agent
nor any Authenticating Agent nor any Debenture Registrar shall be affected by
any notice to the contrary.
SECTION 10.4. CERTAIN DEBENTURES OWNED BY COMPANY DISREGARDED.
In determining whether the holders of the requisite aggregate principal
amount of Debentures have concurred in any direction, consent or waiver under
this Indenture, the Debentures that are owned by the Company or any other
obligor on the Debentures or by any Person directly or indirectly controlling or
controlled by or under common control with the Company or any other obligor on
the Debentures shall be disregarded and deemed not to be Outstanding for the
purpose of any such determination, except that (i) for the purpose of
determining whether the Trustee shall be
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protected in relying on any such direction, consent or waiver, only Debentures
that the Trustee actually knows are so owned shall be so disregarded and (ii)
for purposes of this Section 10.4, the Trust shall be deemed not to be
controlled by the Company. The Debentures so owned that have been pledged in
good faith may be regarded as Outstanding for the purposes of this Section 10.4,
if the pledgee shall establish to the satisfaction of the Trustee the pledgee's
right so to act with respect to such Debentures and that the pledgee is not a
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Company or any such other obligor. In case of a
dispute as to such right, any decision by the Trustee taken upon the advice of
counsel shall be full protection to the Trustee.
SECTION 10.5. ACTIONS BINDING ON FUTURE DEBENTUREHOLDERS.
At any time prior to (but not after) the evidencing to the Trustee, as
provided in Section 10.1, of the taking of any action by the holders of the
majority or percentage in aggregate principal amount of the Debentures specified
in this Indenture in connection with such action, any holder of a Debenture that
is shown by the evidence to be included in the Debentures the holders of which
have consented to such action may, by filing written notice with the Trustee,
and upon proof of holding as provided in Section 10.2, revoke such action so far
as concerns such Debenture. Except as aforesaid any such action taken by the
holder of any Debenture shall be conclusive and binding upon such holder and
upon all future holders and owners of such Debenture, and of any Debenture
issued in exchange therefor, on registration of transfer thereof or in place
thereof, irrespective of whether or not any notation in regard thereto is made
upon such Debenture. Any action taken by the holders of the majority or
percentage in aggregate principal amount of the Debentures specified in this
Indenture in connection with such action shall be conclusively binding upon the
Company, the Trustee and the holders of all the Debentures.
ARTICLE XI.
SUPPLEMENTAL INDENTURES
SECTION 11.1. SUPPLEMENTAL INDENTURES WITHOUT THE CONSENT OF DEBENTUREHOLDERS.
In addition to any supplemental indenture otherwise authorized by this
Indenture, the Company and the Trustee may from time to time and at any time
enter into an indenture or indentures supplemental hereto (which shall conform
to the provisions of the Trust Indenture Act as then in effect), without the
consent of the Debentureholders, for one or more of the following purposes:
(a) to cure any ambiguity, defect, or inconsistency herein, or in the
ebentures;
(b) to comply with Article X;
(c) to provide for uncertificated Debentures in addition to or in place of
certificated Debentures;
(d) to add to the covenants of the Company for the benefit of the holders of
all or any of the Debentures or to surrender any right or power herein conferred
upon the Company;
(e) to add to, delete from, or revise the conditions, limitations, and
restrictions on the authorized amount, terms, or purposes of issue,
authentication, and delivery of Debentures, as herein set forth;
(f) to make any change that does not adversely affect the rights of any
Debentureholder in any material respect;
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(g) to provide for the issuance of and establish the form and terms and
conditions of the Debentures, to establish the form of any certifications
required to be furnished pursuant to the terms of this Indenture or of the
Debentures, or to add to the rights of the holders of the Debentures;
(h) qualify or maintain the qualification of this Indenture under the Trust
Indenture Act; or
(i) to evidence a consolidation or merger involving the Company as permitted
under Section 12.1.
The Trustee is hereby authorized to join with the Company in the execution
of any such supplemental indenture, and to make any further appropriate
agreements and stipulations that may be therein contained, but the Trustee shall
not be obligated to enter into any such supplemental indenture that affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this Section 11.1 may
be executed by the Company and the Trustee without the consent of the holders of
any of the Debentures at the time Outstanding, notwithstanding any of the
provisions of Section 11.2.
SECTION 11.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF DEBENTUREHOLDERS.
With the consent (evidenced as provided in Section 10.1) of the holders of
not less than a majority in aggregate principal amount of the Debentures at the
time Outstanding, the Company, when authorized by Board Resolutions, and the
Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto (which shall conform to the provisions of the
Trust Indenture Act as then in effect) for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of this
Indenture or of any supplemental indenture or of modifying in any manner not
covered by Section 11.1 the rights of the holders of the Debentures under this
Indenture; provided, however, that no such supplemental indenture shall without
the consent of the holders of each Debenture then Outstanding and affected
thereby, (i) extend the fixed maturity of any Debentures, reduce the principal
amount thereof, or reduce the rate or extend the time of payment of interest
thereon, without the consent of the holder of each Debenture so affected; or
(ii) reduce the aforesaid percentage of Debentures, the holders of which are
required to consent to any such supplemental indenture; provided further, that
if the Debentures are held by the Trust or a trustee of the Trust and if the
Debentures are held by the Trust or a trustee of the Trust, such supplemental
indenture shall not be effective until the holders of a majority in liquidation
preference of Trust Securities of the Trust shall have consented to such
supplemental indenture; provided further, that if the Debentures are held by the
Trust or a trustee of the Trust and if the consent of the holder of each
Outstanding Debenture is required, such supplemental indenture shall not be
effective until each holder of the Trust Securities of the Trust shall have
consented to such supplemental indenture. It shall not be necessary for the
consent of the Debentureholders affected thereby under this Section 11.2 to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such consent shall approve the substance thereof.
SECTION 11.3. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture pursuant to the provisions
of this Article XI, this Indenture shall be and be deemed to be modified and
amended in accordance therewith and the respective rights, limitations of
rights, obligations, duties and immunities under this Indenture of the Trustee,
the Company and the holders of Debentures shall thereafter be determined,
exercised and enforced hereunder subject in all respects to such modifications
and amendments, and all the terms and conditions of any such supplemental
indenture shall be and be deemed to be part of the terms and conditions of this
Indenture for any and all purposes.
SECTION 11.4. DEBENTURES AFFECTED BY SUPPLEMENTAL INDENTURES.
Debentures affected by a supplemental indenture, authenticated and delivered
after the execution of such supplemental indenture pursuant to the provisions of
this Article XI, may bear a notation in form approved by the
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Company, provided such form meets the requirements of any exchange upon which
the Debentures may be listed, as to any matter provided for in such supplemental
indenture. If the Company shall so determine, new Debentures so modified as to
conform, in the opinion of the Board of Directors of the Company, to any
modification of this Indenture contained in any such supplemental indenture may
be prepared by the Company, authenticated by the Trustee and delivered in
exchange for the Debentures then Outstanding.
SECTION 11.5. EXECUTION OF SUPPLEMENTAL INDENTURES.
(a) Upon the request of the Company, accompanied by its Board Resolutions
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of Debentureholders required
to consent thereto as aforesaid, the Trustee shall join with the Company in the
execution of such supplemental indenture unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion but shall not be
obligated to enter into such supplemental indenture. The Trustee, subject to the
provisions of Sections 9.1, may receive an Opinion of Counsel as conclusive
evidence that any supplemental indenture executed pursuant to this Article XI is
authorized or permitted by, and conforms to, the terms of this Article XI and
that it is proper for the Trustee under the provisions of this Article XI to
join in the execution thereof.
(b) Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section 11.5, the
Trustee shall transmit by mail, first class postage prepaid, a notice, setting
forth in general terms the substance of such supplemental indenture, to the
Debentureholders as their names and addresses appear upon the Debenture
Register. Any failure of the Trustee to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
supplemental indenture.
ARTICLE XII.
SUCCESSOR CORPORATION
SECTION 12.1. COMPANY MAY CONSOLIDATE, ETC.
Nothing contained in this Indenture or in any of the Debentures shall
prevent any consolidation or merger of the Company with or into any other
corporation or corporations (whether or not affiliated with the Company, as the
case may be), or successive consolidations or mergers in which the Company, as
the case may be, or its successor or successors shall be a party or parties, or
shall prevent any sale, conveyance, transfer or other disposition of the
property of the Company, as the case may be, or its successor or successors as
an entirety, or substantially as an entirety, to any other corporation (whether
or not affiliated with the Company, as the case may be, or its successor or
successors) authorized to acquire and operate the same; provided, however, that
the Company hereby covenants and agrees that, (i) upon any such consolidation,
merger, sale, conveyance, transfer or other disposition, the due and punctual
payment, in the case of the Company, of the principal of and interest on all of
the Debentures, according to their tenor and the due and punctual performance
and observance of all the covenants and conditions of this Indenture to be kept
or performed by the Company as the case may be, shall be expressly assumed, by
supplemental indenture (which shall conform to the provisions of the Trust
Indenture Act, as then in effect) satisfactory in form to the Trustee executed
and delivered to the Trustee by the entity formed by such consolidation, or into
which the Company, as the case may be, shall have been merged, or by the entity
which shall have acquired such property; (ii) in case the Company consolidates
with or merges into another Person or conveys or transfers its properties and
assets substantially then as an entirety to any Person, the successor Person is
organized under the laws of the United States or any state or the District of
Columbia; and (iii) immediately after giving effect thereto, an Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have occurred and be continuing.
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SECTION 12.2. SUCCESSOR CORPORATION SUBSTITUTED.
(a) In case of any such consolidation, merger, sale, conveyance, transfer or
other disposition and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee and satisfactory
in form to the Trustee, of the due and punctual payment of the principal of and
interest on all of the Debentures Outstanding and the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by the Company such successor corporation shall succeed to and be
substituted for the Company, with the same effect as if it had been named as the
Company herein, and thereupon the predecessor corporation shall be relieved of
all obligations and covenants under this Indenture and the Debentures.
(b) In case of any such consolidation, merger, sale, conveyance, transfer or
other disposition such changes in phraseology and form (but not in substance)
may be made in the Debentures thereafter to be issued as may be appropriate.
(c) Nothing contained in this Indenture or in any of the Debentures shall
prevent the Company from merging into itself or acquiring by purchase or
otherwise all or any part of the property of any other Person (whether or not
affiliated with the Company).
SECTION 12.3. EVIDENCE OF CONSOLIDATION, ETC. TO TRUSTEE.
The Trustee, subject to the provisions of Section 9.1, may receive an
Opinion of Counsel as conclusive evidence that any such consolidation, merger,
sale, conveyance, transfer or other disposition, and any such assumption, comply
with the provisions of this Article XII.
ARTICLE XIII.
SATISFACTION AND DISCHARGE
SECTION 13.1. SATISFACTION AND DISCHARGE OF INDENTURE.
If at any time: (a) the Company shall have delivered to the Trustee for
cancellation all Debentures theretofore authenticated (other than any Debentures
that shall have been destroyed, lost or stolen and that shall have been replaced
or paid as provided in Section 2.9) and Debentures for whose payment money or
Governmental Obligations have theretofore been deposited in trust or segregated
and held in trust by the Company (and thereupon repaid to the Company or
discharged from such trust, as provided in Section 13.5); or (b) all such
Debentures not theretofore delivered to the Trustee for cancellation shall have
become due and payable, or are by their terms to become due and payable within
one year or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and the
Company shall deposit or cause to be deposited with the Trustee as trust funds
the entire amount in moneys or Governmental Obligations sufficient or a
combination thereof, sufficient in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay at maturity or upon redemption all Debentures
not theretofore delivered to the Trustee for cancellation, including principal
and interest due or to become due to such date of maturity or date fixed for
redemption, as the case may be, and if the Company shall also pay or cause to be
paid all other sums payable hereunder by the Company; then this Indenture shall
thereupon cease to be of further effect except for the provisions of Sections
2.3, 2.7, 2.9, 5.1, 5.2, 5.3, 9.7 and 9.10, which shall survive until the date
of maturity or redemption date, as the case may be, and Sections 9.6 and 13.5,
which shall survive to such date and thereafter, and the Trustee, on demand of
the Company and at the cost and expense of the Company, shall execute proper
instruments acknowledging satisfaction of and discharging this Indenture.
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SECTION 13.2. DISCHARGE OF OBLIGATIONS.
If at any time all Debentures not heretofore delivered to the Trustee for
cancellation or that have not become due and payable as described in Section
13.1 shall have been paid by the Company by depositing irrevocably with the
Trustee as trust funds moneys or an amount of Governmental Obligations
sufficient in the opinion of a nationally recognized certified public accounting
firm to pay at maturity or upon redemption all Debentures not theretofore
delivered to the Trustee for cancellation, including principal and interest due
or to become due to such date of maturity or date fixed for redemption, as the
case may be, and if the Company shall also pay or cause to be paid all other
sums payable hereunder by the Company, then after the date such moneys or
Governmental Obligations, as the case may be, are deposited with the Trustee,
the obligations of the Company under this Indenture shall cease to be of further
effect except for the provisions of Sections 2.3, 2.7, 2.9, 5.1, 5.2, 5.3, 9.6,
9.7, 9.10 and 13.5 hereof which shall survive until such Debentures shall mature
and be paid. Thereafter, Sections 9.6 and 13.5 shall survive.
SECTION 13.3. DEPOSITED MONEYS TO BE HELD IN TRUST.
All monies or Governmental Obligations deposited with the Trustee pursuant
to Sections 13.1 or 13.2 shall be held in trust and shall be available for
payment as due, either directly or through any Paying Agent (including the
Company acting as its own Paying Agent), to the holders of the Debentures for
the payment or redemption of which such moneys or Governmental Obligations have
been deposited with the Trustee.
SECTION 13.4. PAYMENT OF MONIES HELD BY PAYING AGENTS.
In connection with the satisfaction and discharge of this Indenture, all
moneys or Governmental Obligations then held by any Paying Agent under the
provisions of this Indenture shall, upon demand of the Company, be paid to the
Trustee and thereupon such Paying Agent shall be released from all further
liability with respect to such moneys or Governmental Obligations.
SECTION 13.5. REPAYMENT TO COMPANY.
Any monies or Governmental Obligations deposited with any Paying Agent or
the Trustee, or then held by the Company in trust, for payment of principal of
or interest on the Debentures that are not applied but remain unclaimed by the
holders of such Debentures for at least two years after the date upon which the
principal of or interest on such Debentures shall have respectively become due
and payable, shall be repaid to the Company, as the case may be, on May 31 of
each year or (if then held by the Company) shall be discharged from such trust;
and thereupon the Paying Agent and the Trustee shall be released from all
further liability with respect to such moneys or Governmental Obligations, and
the holder of any of the Debentures entitled to receive such payment shall
thereafter, as an unsecured general creditor, look only to the Company for the
payment thereof.
ARTICLE XIV.
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS
AND DIRECTORS
SECTION 14.1. NO RECOURSE
No recourse under or upon any obligation, covenant or agreement of this
Indenture, or of the Debentures, or for any claim based thereon or otherwise in
respect thereof, shall be had against any incorporator, stockholder, officer or
director, past, present or future as such, of the Company or of any predecessor
or successor corporation, either directly or through the Company or any such
predecessor or successor corporation, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that this
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Indenture and the obligations issued hereunder are solely corporate obligations,
and that no such personal liability whatever shall attach to, or is or shall be
incurred by, the incorporators, stockholders, officers or directors as such, of
the Company or of any predecessor or successor corporation, or any of them,
because of the creation of the indebtedness hereby authorized, or under or by
reason of the obligations, covenants or agreements contained in this Indenture
or in any of the Debentures or implied therefrom; and that any and all such
personal liability of every name and nature, either at common law or in equity
or by constitution or statute, of, and any and all such rights and claims
against, every such incorporator, stockholder, officer or director as such,
because of the creation of the indebtedness hereby authorized, or under or by
reason of the obligations, covenants or agreements contained in this Indenture
or in any of the Debentures or implied therefrom, are hereby expressly waived
and released as a condition of, and as a consideration for, the execution of
this Indenture and the issuance of such Debentures.
ARTICLE XV.
MISCELLANEOUS PROVISIONS
SECTION 15.1. EFFECT ON SUCCESSORS AND ASSIGNS.
All the covenants, stipulations, promises and agreements in this Indenture
contained by or on behalf of the Company shall bind its successors and assigns,
whether so expressed or not.
SECTION 15.2. ACTIONS BY SUCCESSOR.
Any act or proceeding by any provision of this Indenture authorized or
required to be done or performed by any board, committee or officer of the
Company shall and may be done and performed with like force and effect by the
corresponding board, committee or officer of any corporation that shall at the
time be the lawful sole successor of the Company.
SECTION 15.3. SURRENDER OF COMPANY POWERS.
The Company by instrument in writing executed by appropriate authority of
its Board of Directors and delivered to the Trustee may surrender any of the
powers reserved to the Company, and thereupon such power so surrendered shall
terminate both as to the Company, as the case may be, and as to any successor
corporation.
SECTION 15.4. NOTICES.
Except as otherwise expressly provided herein any notice or demand that by
any provision of this Indenture is required or permitted to be given or served
by the Trustee or by the holders of Debentures to or on the Company may be given
or served by being deposited first class postage prepaid in a post-office
letterbox addressed (until another address is filed in writing by the Company
with the Trustee) to Abington Bancorp, Inc., 536 Washington Street, Abington,
Massachusetts 02351, Attention: Chief Financial Officer. Any notice, election,
request or demand by the Company or any Debentureholder to or upon the Trustee
shall be deemed to have been sufficiently given or made, for all purposes, if
given or made in writing at the Corporate Trust Office of the Trustee.
SECTION 15.5. GOVERNING LAW.
This Indenture and each Debenture shall be deemed to be a contract made
under the internal laws of The Commonwealth of Massachusetts and for all
purposes shall be construed in accordance with the laws of such Commonwealth.
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SECTION 15.6. TREATMENT OF DEBENTURES AS DEBT.
It is intended that the Debentures shall be treated as indebtedness and not
as equity for federal income tax purposes. The provisions of this Indenture
shall be interpreted to further this intention.
SECTION 15.7. COMPLIANCE CERTIFICATES AND OPINIONS.
(a) Upon any application or demand by the Company to the Trustee to take any
action under any of the provisions of this Indenture, the Company shall furnish
to the Trustee an Officers' Certificate stating that all conditions precedent
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent have been complied with, except that in
the case of any such application or demand as to which the furnishing of such
documents is specifically required by any provision of this Indenture relating
to such particular application or demand, no additional certificate or opinion
need be furnished.
(b) Each certificate or opinion of the Company provided for in this
Indenture and delivered to the Trustee with respect to compliance with a
condition or covenant in this Indenture shall include (1) a statement that the
Person making such certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based; (3) a statement that, in the opinion of such
Person, he has made such examination or investigation as, in the opinion of such
Person, is necessary to enable him to express an informed opinion as to whether
or not such covenant or condition has been complied with; and (4) a statement as
to whether or not, in the opinion of such Person, such condition or covenant has
been complied with.
SECTION 15.8. PAYMENTS ON BUSINESS DAYS.
In any case where the date of maturity of interest or principal of any
Debenture or the date of redemption of any Debenture shall not be a Business
Day, then payment of interest or principal may (subject to Section 2.5) be made
on the next succeeding Business Day with the same force and effect as if made on
the nominal date of maturity or redemption, and no interest shall accrue for the
period after such nominal date.
SECTION 15.9. CONFLICT WITH TRUST INDENTURE ACT.
If and to the extent that any provision of this Indenture limits, qualifies
or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the
Trust Indenture Act, such imposed duties shall control.
SECTION 15.10. COUNTERPARTS.
This Indenture may be executed in any number of counterparts, each of which
shall be an original, but such counterparts shall together constitute but one
and the same instrument.
SECTION 15.11. SEPARABILITY.
In case any one or more of the provisions contained in this Indenture or in
the Debentures shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Indenture or of the Debentures,
but this Indenture and the Debentures shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein or therein.
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SECTION 15.12. ASSIGNMENT.
The Company shall have the right at all times to assign any of its
respective rights or obligations under this Indenture to a direct or indirect
wholly owned Subsidiary of the Company, provided that, in the event of any such
assignment, the Company shall remain liable for all such obligations. Subject to
the foregoing, this Indenture is binding upon and inures to the benefit of the
parties thereto and their respective successors and assigns. This Indenture may
not otherwise be assigned by the parties thereto.
SECTION 15.13. ACKNOWLEDGMENT OF RIGHTS; RIGHT OF SETOFF.
(a) The Company acknowledges that, with respect to any Debentures held by
the Trust or a trustee of the Trust, if the Property Trustee fails to enforce
its rights under this Indenture as the holder of the Debentures held as the
assets of the Trust, any holder of Preferred Securities may institute legal
proceedings directly against the Company to enforce such Property Trustee's
rights under this Indenture without first instituting any legal proceedings
against such Property Trustee or any other person or entity. Notwithstanding the
foregoing, and notwithstanding the provisions of Section 7.4(a) hereof, if an
Event of Default has occurred and is continuing and such event is attributable
to the failure of the Company to pay principal or interest on the Debentures on
the date such principal or interest is otherwise payable (or in the case of
redemption, on the redemption date), the Company acknowledges that a holder of
Preferred Securities may directly institute a proceeding for enforcement of
payment to such holder of the principal of or interest on the Debentures having
a principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such holder on or after the respective due date specified in the
Debentures.
(b) Notwithstanding anything to the contrary contained in this Indenture,
the Company shall have the right to setoff any payment it is otherwise required
to make hereunder in respect of any Trust Securities to the extent that the
Company has previously made, or is concurrently making, a payment to the holder
of such Trust Securities under the Preferred Securities Guarantee or in
connection with a proceeding for enforcement of payment of the principal of or
interest on the Debentures directly brought by holders of any Trust Securities.
(c) For so long as any of the Preferred Securities remain outstanding, if,
upon an Event of Default, the Trust holds the Debentures and the Property
Trustee fails or the holders of not less than 25% in principal amount of the
Outstanding Debentures fail to declare the principal of all of the Debentures to
be immediately due and payable, the holders of at least 25% in liquidation
amount of the Preferred Securities then Outstanding (determined as provided in
the Trust Agreement) shall have the right to make such declaration by a notice
in writing to the Depositor and the Property Trustee; and upon any such
declaration such declaration such principal amount of and the accrued interest
on all of the Debentures shall become immediately due and payable, provided that
the payment of principal and interest on such Debentures shall remain
subordinated to the extent provided in this Indenture.
ARTICLE XVI.
SUBORDINATION OF DEBENTURES
SECTION 16.1. AGREEMENT TO SUBORDINATE.
The Company covenants and agrees, and each holder of Debentures issued
hereunder by such holder's acceptance thereof likewise covenants and agrees,
that all Debentures shall be issued subject to the provisions of this Article
XVI; and each holder of a Debenture, whether upon original issue or upon
transfer or assignment thereof, accepts and agrees to be bound by such
provisions. The payment by the Company of the principal of and interest on all
Debentures issued hereunder shall, to the extent and in the manner hereinafter
set forth, be subordinated and junior in right of payment to the prior payment
in full of all Senior Debt, Subordinated Debt and Additional Senior Obligations
of the Company (collectively, "Senior Indebtedness") to the extent provided
herein, whether outstanding at the date of this Indenture
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or thereafter incurred. No provision of this Article XVI shall prevent the
occurrence of any default or Event of Default hereunder.
SECTION 16.2. DEFAULT ON SENIOR DEBT, SUBORDINATED DEBT OR ADDITIONAL SENIOR
OBLIGATIONS.
In the event and during the continuation of any default by the Company in
the payment of principal, premium, interest or any other payment due on any
Senior Indebtedness of the Company, or in the event that the maturity of any
Senior Indebtedness of the Company has been accelerated because of a default,
then, in either case, no payment shall be made by the Company with respect to
the principal (including redemption payments) of or interest on the Debentures.
In the event that, notwithstanding the foregoing, any payment shall be received
by the Trustee when such payment is prohibited by the preceding sentence of this
Section 16.2, such payment shall be held in trust for the benefit of, and shall
be paid over or delivered to, the holders of Senior Indebtedness or their
respective representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Senior Indebtedness may have been issued, as their
respective interests may appear, but only to the extent that the holders of the
Senior Indebtedness (or their representative or representatives or a trustee)
notify the Trustee in writing within 90 days of such payment of the amounts then
due and owing on the Senior Indebtedness and only the amounts specified in such
notice to the Trustee shall be paid to the holders of Senior Indebtedness.
SECTION 16.3. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
(a) Upon any payment by the Company or distribution of assets of the Company
of any kind or character, whether in cash, property or securities, to creditors
upon any dissolution or winding-up or liquidation or reorganization of the
Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due upon all Senior Indebtedness
of the Company shall first be paid in full, or payment thereof provided for in
money in accordance with its terms, before any payment is made by the Company on
account of the principal or interest on the Debentures; and upon any such
dissolution or winding-up or liquidation or reorganization, any payment by the
Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the holders of the Debentures
or the Trustee would be entitled to receive from the Company, except for the
provisions of this Article XVI, shall be paid by the Company or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other Person making such
payment or distribution, or by the holders of the Debentures or by the Trustee
under this Indenture if received by them or it, directly to the holders of
Senior Indebtedness of the Company (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders, as calculated by
the Company) or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing such
Senior Indebtedness may have been issued, as their respective interests may
appear, to the extent necessary to pay such Senior Indebtedness in full, in
money or money's worth, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness, before any
payment or distribution is made to the holders of Debentures or to the Trustee.
(b) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
Trustee before all Senior Indebtedness of the Company is paid in full, or
provision is made for such payment in money in accordance with its terms, such
payment or distribution shall be held in trust for the benefit of and shall be
paid over or delivered to the holders of such Senior Indebtedness or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior Indebtedness
may have been issued, as their respective interests may appear, as calculated by
the Company, for application to the payment of all Senior Indebtedness of the
Company, as the case may be, remaining unpaid to the extent necessary to pay
such Senior Indebtedness in full in money in accordance with its terms, after
giving effect to any concurrent payment or distribution to or for the benefit of
the holders of such Senior Indebtedness.
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(c) For purposes of this Article XVI, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article XVI with respect
to the Debentures to the payment of all Senior Indebtedness of the Company, as
the case may be, that may at the time be outstanding, provided that (i) such
Senior Indebtedness is assumed by the new corporation, if any, resulting from
any such reorganization or readjustment; and (ii) the rights of the holders of
such Senior Indebtedness are not, without the consent of such holders, altered
by such reorganization or readjustment. The consolidation of the Company with,
or the merger of the Company into, another corporation or the liquidation or
dissolution of the Company following the conveyance or transfer of its property
as an entirety, or substantially as an entirety, to another corporation upon the
terms and conditions provided for in Article XII shall not be deemed a
dissolution, winding-up, liquidation or reorganization for the purposes of this
Section 16.3 if such other corporation shall, as a part of such consolidation,
merger, conveyance or transfer, comply with the conditions stated in Article
XII. Nothing in Section 16.2 or in this Section 16.3 shall apply to claims of,
or payments to, the Trustee under or pursuant to Section 9.7.
SECTION 16.4. SUBROGATION.
(a) Subject to the payment in full of all Senior Indebtedness of the
Company, the rights of the holders of the Debentures shall be subrogated to the
rights of the holders of such Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company, as the case may
be, applicable to such Senior Indebtedness until the principal of and interest
on the Debentures shall be paid in full; and, for the purposes of such
subrogation, no payments or distributions to the holders of such Senior
Indebtedness of any cash, property or securities to which the holders of the
Debentures or the Trustee would be entitled except for the provisions of this
Article XVI, and no payment over pursuant to the provisions of this Article XVI
to or for the benefit of the holders of such Senior Indebtedness by holders of
the Debentures or the Trustee, shall, as between the Company, its creditors
other than holders of Senior Indebtedness of the Company, and the holders of the
Debentures, be deemed to be a payment by the Company to or on account of such
Senior Indebtedness. It is understood that the provisions of this Article XVI
are and are intended solely for the purposes of defining the relative rights of
the holders of the Debentures, on the one hand, and the holders of such Senior
Indebtedness on the other hand.
(b) Nothing contained in this Article XVI or elsewhere in this Indenture or
in the Debentures is intended to or shall impair, as between the Company, its
creditors (other than the holders of Senior Indebtedness of the Company), and
the holders of the Debentures, the obligation of the Company, which is absolute
and unconditional, to pay to the holders of the Debentures the principal of and
interest on the Debentures as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the holders of the Debentures and creditors of the Company, as the
case may be, other than the holders of Senior Indebtedness of the Company, as
the case may be, nor shall anything herein or therein prevent the Trustee or the
holder of any Debenture from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article XVI of the holders of such Senior Indebtedness in respect of
cash, property or securities of the Company, as the case may be, received upon
the exercise of any such remedy.
(c) Upon any payment or distribution of assets of the Company referred to in
this Article XVI, the Trustee, subject to the provisions of Article IX, and the
holders of the Debentures shall be entitled to conclusively rely upon any order
or decree made by any court of competent jurisdiction in which such dissolution,
winding-up, liquidation or reorganization proceedings are pending, or a
certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent
or other Person making such payment or distribution, delivered to the Trustee or
to the holders of the Debentures, for the purposes of ascertaining the Persons
entitled to participate in such distribution, the holders of Senior Indebtedness
and other indebtedness of the Company, as the case may be, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article XVI.
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SECTION 16.5. TRUSTEE TO EFFECTUATE SUBORDINATION.
Each holder of Debentures by such holder's acceptance thereof authorizes and
directs the Trustee on such holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article XVI and appoints the Trustee such holder's attorney-in-fact for any and
all such purposes.
SECTION 16.6. NOTICE BY THE COMPANY.
(a) The Company shall give prompt written notice to a Responsible Officer of
the Trustee of any fact known to the Company that would prohibit the making of
any payment of monies to or by the Trustee in respect of the Debentures pursuant
to the provisions of this Article XVI. Notwithstanding the provisions of this
Article XVI or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts that would prohibit the
making of any payment of monies to or by the Trustee in respect of the
Debentures pursuant to the provisions of this Article XVI, unless and until a
Responsible Officer of the Trustee shall have received written notice thereof
from the Company or a holder or holders of Senior Indebtedness or from any
trustee therefor; and before the receipt of any such written notice, the
Trustee, subject to the provisions of Section 9.1, shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section 16.6 at
least two Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose (including, without limitation, the
payment of the principal of or interest on any Debenture), then, anything herein
contained to the contrary notwithstanding, the Trustee shall have full power and
authority to receive such money and to apply the same to the purposes for which
they were received, and shall not be affected by any notice to the contrary that
may be received by it within two Business Days prior to such date.
(b) The Trustee, subject to the provisions of Section 9.1, shall be entitled
to conclusively rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness of the Company (or a
trustee on behalf of such holder) to establish that such notice has been given
by a holder of such Senior Indebtedness or a trustee on behalf of any such
holder or holders. In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a holder
of such Senior Indebtedness to participate in any payment or distribution
pursuant to this Article XVI, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of such
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article XVI, and, if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
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SECTION 16.7. RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS.
(a) The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article XVI in respect of any Senior Indebtedness at
any time held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. The Trustee's right to compensation and reimbursement
of expenses as set forth in Section 9.7 shall not be subject to the
subordination provisions of the Article XVI.
(b) With respect to the holders of Senior Indebtedness of the Company, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article XVI, and no implied
covenants or obligations with respect to the holders of such Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of such Senior Indebtedness and,
subject to the provisions of Section 9.1, the Trustee shall not be liable to any
holder of such Senior Indebtedness if it shall pay over or deliver to holders of
Debentures, the Company or any other Person money or assets to which any holder
of such Senior Indebtedness shall be entitled by virtue of this Article XVI or
otherwise.
SECTION 16.8. SUBORDINATION MAY NOT BE IMPAIRED.
(a) No right of any present or future holder of any Senior Indebtedness of
the Company to enforce subordination as herein provided shall at any time in any
way be prejudiced or impaired by any act or failure to act on the part of the
Company or by any act or failure to act, in good faith, by any such holder, or
by any noncompliance by the Company with the terms, provisions and covenants of
this Indenture, regardless of any knowledge thereof that any such holder may
have or otherwise be charged with.
(b) Without in any way limiting the generality of Section 16.8(a), the
holders of Senior Indebtedness of the Company may, at any time and from time to
time, without the consent of or notice to the Trustee or the holders of the
Debentures, without incurring responsibility to the holders of the Debentures
and without impairing or releasing the subordination provided in this Article
XVI or the obligations hereunder of the holders of the Debentures to the holders
of such Senior Indebtedness, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, such Senior Indebtedness, or otherwise amend or supplement in any manner
such Senior Indebtedness or any instrument evidencing the same or any agreement
under which such Senior Indebtedness is outstanding; (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing such Senior Indebtedness; (iii) release any Person liable in any manner
for the collection of such Senior Indebtedness; and (iv) exercise or refrain
from exercising any rights against the Company and any other Person.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly
executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
ABINGTON BANCORP, INC.
By:
-------------------------------
Name:
Title:
Attest:
---------------------------
STATE STREET BANK AND TRUST COMPANY
as trustee
By:
-------------------------------
Name:
Title:
Attest:
---------------------------
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THE COMMONWEALTH OF MASSACHUSETTS)
) ss
COUNTY OF _______________________)
On this ________ day of _________________ , 1998, before me appeared
___________________, to me personally known, who, being by me duly sworn, did
say that he is the_____________________________ of Abington Bancorp, Inc. and
that the seal affixed to said instrument is the corporate seal of said
corporation, and that said instrument was signed and sealed in behalf of said
corporation by authority of its board of directors and said
_____________________, acknowledged said instrument to be the free act and deed
of said corporation.
In testimony whereof I have hereunto set my hand and affixed my official
seal at my office in said county and state the day and year last above written.
------------------------
--------------
Notary Public
My term expires:
[seal]
THE COMMONWEALTH OF MASSACHUSETTS)
) ss
COUNTY OF SUFFOLK )
On this ________________ day of ____________, 1998, before me appeared
_______________________ , to me personally known, who, being by me duly sworn,
did say that he is the of _________________________ State Street Bank and Trust
Company, and that the seal affixed to said instrument is the corporate seal of
said corporation, and that said instrument was signed and sealed in behalf of
said corporation by authority of its board of directors and said
__________________ , acknowledged said instrument to be the free act and deed of
said corporation.
In testimony whereof I have hereunto set my hand and affixed my official
seal at my office in said county and commonwealth the day and year last above
written.
------------------------
--------------
Notary Public
My term expires:
46
<PAGE> 1
EXHIBIT 4.2
$_______
Certificate No. 1
CUSIP No. ______________________
ABINGTON BANCORP, INC.
______% JUNIOR SUBORDINATED DEBENTURE
DUE JUNE 30, 2029
Abington Bancorp, Inc., a Massachusetts corporation (the "Company," which
term includes any successor corporation under the Indenture hereinafter referred
to), for value received, hereby promises to pay to State Street Bank and Trust
Company, as Property Trustee for Abington Bancorp Capital Trust, or registered
assigns, the principal sum of __________________Thousand Dollars ($__________ )
on June 30, 2029 (the "Stated Maturity"), and to pay interest on said principal
sum from ___________, 1998, or from the most recent interest payment date (each
such date, an "Interest Payment Date") to which interest has been paid or duly
provided for, quarterly (subject to deferral as set forth herein) in arrears on
March 31, June 30, September 30 and December 31 of each year commencing June 30,
1998, at the rate of ______% per annum until the principal hereof shall have
become due and payable, and on any overdue principal and (without duplication)
on any overdue installment of interest at the same rate per annum compounded
quarterly. The amount of interest payable on any Interest Payment Date shall be
computed on the basis of a 360-day year of twelve 30- day months. The amount of
interest for any partial period shall be computed on the basis of the number of
days elapsed in a 360-day year of twelve 30-day months. In the event that any
date on which interest is payable on this Debenture is not a business day, then
payment of interest payable on such date shall be made on the next succeeding
day that is a Business Day (as defined in the Indenture) (and without any
interest or other payment in respect of any such delay) with the same force and
effect as if made on such date. The interest installment so payable, and
punctually paid or duly provided for, on any Interest Payment Date shall, as
provided in the Indenture, be paid to the person in whose name this Debenture
(or one or more Predecessor Debentures, as defined in said Indenture) is
registered at the close of business on the regular record date for such interest
installment, which shall be the close of business on the fifteenth day of the
last month of the calendar quarter in which the Interest Payment Date occurs
unless otherwise provided in the Indenture. Any such interest installment not
punctually paid or duly provided for shall forthwith cease to be payable to the
registered holders on such regular record date and may be paid to the person in
whose name this Debenture (or one or more Predecessor Debentures) is registered
at the close of business on a special record date to be fixed by the Trustee for
the payment of such defaulted interest, notice whereof shall be given to the
registered holders of the Debentures not less than 10 days prior to such special
record date, or may be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Debentures may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in the Indenture. The principal of and the
interest on this Debenture shall be payable at the office or agency of the
Trustee maintained for that purpose in any coin or currency of the United States
of America that at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
option of the Company by check mailed to the registered holder at such address
as shall appear in the Debenture Register. Notwithstanding the foregoing, so
long as the holder of this Debenture is the Property Trustee, the payment of the
principal of and interest on this Debenture shall be made at such place and to
such account as may be designated by the Trustee.
This Debenture may be redeemed by the Company on any date not earlier than
June 30, 2003, subject to the Company having received prior approval of the
Federal Reserve if then required under applicable capital guidelines or policies
of the Federal Reserve.
The indebtedness evidenced by this Debenture is, to the extent provided in
the Indenture, subordinate and junior in right of payment to the prior payment
in full of all Senior Indebtedness (as defined in the Indenture), and this
Debenture is issued subject to the provisions of the Indenture with respect
thereto. Each holder of this Debenture, by accepting the same, (a) agrees to and
shall be bound by such provisions; (b) authorizes and directs the Trustee on his
<PAGE> 2
or her behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination so provided; and (c) appoints the
Trustee his or her attorney-in-fact for any and all such purposes. Each holder
hereof, by his or her acceptance hereof, hereby waives all notice of the
acceptance of the subordination provisions contained herein and in the Indenture
by each holder of Senior Indebtedness, whether now outstanding or hereafter
incurred, and waives reliance by each such holder upon said provisions.
This Debenture shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.
The provisions of this Debenture are continued on the reverse side hereof
and such continued provisions shall for all purposes have the same effect as
though fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed.
Dated: , 1998
ABINGTON BANCORP, INC.
By:
------------------------------
President and Chief Executive Officer
Attest:
By:
---------------------------------
Vice President and Treasurer
<PAGE> 3
__________% SUBORDINATED DEBENTURE
(CONTINUED)
This Debenture is one of the subordinated debentures of the Company (herein
sometimes referred to as the "Debentures"), all issued or to be issued under and
pursuant to an Indenture dated as of _______________, 1998 (the "Indenture")
duly executed and delivered between the Company and State Street Bank and Trust
Company, as Trustee (the "Trustee"), to which Indenture reference is hereby
made for a description of the rights, limitations of rights, obligations,
duties and immunities thereunder of the Trustee, the Company and the holders of
the Debentures. The Debentures are limited in aggregate principal amount as
specified in the Indenture.
The Company shall have the right to redeem this Debenture at the option of
the Company, without premium or penalty, in whole or in part at any time on or
after June 30, 2003 (an "Optional Redemption"), or at any time in certain
circumstances upon the occurrence of a Special Event (as defined in the
Indenture), at a redemption price (the "Redemption Price") equal to 100% of the
principal amount hereof plus any accrued but unpaid interest hereon, to the date
of such redemption, plus Additional Interest, if any. Any redemption pursuant to
this paragraph shall be made upon not less than 30 days nor more than 60 days
notice, at the Redemption Price. If the Debentures are only partially redeemed
by the Company pursuant to an Optional Redemption, the Debentures shall be
redeemed pro rata or by lot or by any other method utilized by the Trustee as
described in the Indenture.
In the event of redemption of this Debenture in part only, a new Debenture
or Debentures for the unredeemed portion hereof shall be issued in the name of
the holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount of the Debentures at the time outstanding, as defined in the
Indenture, to execute supplemental indentures for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of any supplemental indenture or of modifying in any manner the
rights of the holders of the Debentures; provided, however, that no such
supplemental indenture shall (i) extend the fixed maturity of the Debentures
except as provided in the Indenture, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon, without the
consent of the holder of each Debenture so affected; or (ii) reduce the
aforesaid percentage of Debentures, the holders of which are required to consent
to any such supplemental indenture, without the consent of the holders of each
Debenture then outstanding and affected thereby. The Indenture also contains
provisions permitting the holders of a majority in aggregate principal amount of
the Debentures at the time outstanding, on behalf of all of the holders of the
Debentures, to waive any past default in the performance of any of the covenants
contained in the Indenture, or established pursuant to the Indenture, and its
consequences, except a default in the payment of the principal of or interest on
any of the Debentures. Any such consent or waiver by the registered holder of
this Debenture (unless revoked as provided in the Indenture) shall be conclusive
and binding upon such holder and upon all future holders and owners of this
Debenture and of any Debenture issued in exchange herefor or in place hereof
(whether by registration of transfer or otherwise), irrespective of whether or
not any notation of such consent or waiver is made upon this Debenture.
No reference herein to the Indenture and no provision of this Debenture or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal and interest on this Debenture
at the time and place and at the rate and in the money herein prescribed.
The Company, as further described in the Indenture, shall have the right at
any time during the term of the Debentures and from time to time to extend the
interest payment period of such Debentures for up to 20 consecutive
<PAGE> 4
quarters (each, an "Extended Interest Payment Period"), at the end of which
period the Company shall pay all interest then accrued and unpaid, including any
Additional Interest and Compounded Interest (as defined in the Indenture and
together, the "Deferred Payments") that shall be payable to the holders of the
Debentures in whose names the Debentures are registered in the Debenture
Register on the first record date after the end of the Extension Period. Before
the termination of any such Extended Interest Payment Period, the Company may
further extend such Extended Interest Payment Period, provided that such
Extended Interest Payment Period together with all such further extensions
thereof shall not exceed 20 consecutive quarters. At the termination of any such
Extended Interest Payment Period and upon the payment of all Deferred Payments
then due, the Company may commence a new Extended Interest Payment Period.
As provided in the Indenture and subject to certain limitations therein set
forth, this Debenture is transferable by the registered holder hereof on the
Debenture Register of the Company, upon surrender of this Debenture for
registration of transfer at the office or agency of the Trustee accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Company or the Trustee duly executed by the registered holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Debentures of
authorized denominations and for the same aggregate principal amount shall be
issued to the designated transferee or transferees. No service charge shall be
made for any such transfer, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in relation
thereto.
Prior to due presentment for registration of transfer of this Debenture,
the Company, the Trustee, any Paying Agent and the Debenture Registrar may deem
and treat the registered holder hereof as the absolute owner hereof (whether or
not this Debenture shall be overdue and notwithstanding any notice of ownership
or writing hereon made by anyone other than the Debenture Registrar) for the
purpose of receiving payment of or on account of the principal hereof and
interest due hereon and for all other purposes, and neither the Company nor the
Trustee nor any Paying Agent nor any Debenture Registrar shall be affected by
any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof, expressly
waived and released.
The Debentures are issuable only in registered form without coupons in
denominations of $10 and any integral multiple thereof (or such other
denominations and any integral multiple thereof as may be deemed necessary by
the Company for the purpose of maintaining the eligibility of the Debentures for
quotation on the Nasdaq National Market or any successor thereto).
All terms used in this Debenture that are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
<PAGE> 5
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures described in the within-mentioned Indenture.
Dated: , 1998
STATE STREET BANK AND TRUST COMPANY
as Trustee
By
----------------------------------
Authorized Signatory
<PAGE> 1
EXHIBIT 4.3
CERTIFICATE OF TRUST
OF
ABINGTON BANCORP CAPITAL TRUST
THIS CERTIFICATE OF TRUST OF ABINGTON BANCORP CAPITAL TRUST (the "Trust"),
dated as of May 6, 1998, is being duly executed and filed by WILMINGTON TRUST
COMPANY, a Delaware banking corporation, James P. McDonough, Robert M. Lallo,
and Louis Paragon, each an individual, as trustees, to form a business trust
under the Delaware Business Trust Act (12 Del. C. Section 3801 et seq.).
1. NAME. The name of the business trust formed hereby is Abington Bancorp
Capital Trust.
2. DELAWARE TRUSTEE. The name and business address of the trustee of the
Trust in the State of Delaware is Wilmington Trust Company, Rodney Square North,
1100 North Market Street, Wilmington, Delaware 19890- 0001, Attention: Corporate
Trust Administration.
3. EFFECTIVE DATE. This Certificate of Trust shall be effective on May 7,
1998.
IN WITNESS WHEREOF, the undersigned, being the sole trustees of the Trust,
has executed this Certificate of Trust as of the date first above written.
WILMINGTON TRUST COMPANY,
as Delaware Trustee
By: /s/ Hammett R. Harrison
---------------------------------------------
Name: Hammett R. Harrison
Title: Vice President
/s/ James P. McDonough, as Administrative Trustee
-----------------------
James P. McDonough
/s/ Robert M. Lallo, as Administrative Trustee
----------------------
Robert M. Lallo
/s/ Louis A. Paragona, as Administrative Trustee
----------------------
Louis Paragona
<PAGE> 1
EXHIBIT 4.4
================================================================================
============
-----------------------------
AMENDED AND RESTATED
TRUST AGREEMENT
AMONG
ABINGTON BANCORP, INC., AS DEPOSITOR
STATE STREET BANK AND TRUST COMPANY, AS PROPERTY TRUSTEE
WILMINGTON TRUST COMPANY, AS DELAWARE TRUSTEE,
AND
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
DATED AS OF _____, 1998
================================================================================
============
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
ARTICLE I
DEFINED TERMS......................................................... 2
SECTION 101. DEFINITIONS.............................................. 2
ARTICLE II
ESTABLISHMENT OF THE TRUST............................................ 10
SECTION 201. NAME..................................................... 10
SECTION 202. OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL
PLACE OF BUSINESS..................................... 10
SECTION 203. INITIAL CONTRIBUTION OF TRUST PROPERTY;
ORGANIZATIONAL EXPENSES............................... 10
SECTION 204. ISSUANCE OF THE PREFERRED SECURITIES..................... 10
SECTION 205. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION
AND PURCHASE OF DEBENTURES............................ 11
SECTION 206. DECLARATION OF TRUST..................................... 11
SECTION 207. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS......... 12
SECTION 208. ASSETS OF TRUST.......................................... 15
SECTION 209. TITLE TO TRUST PROPERTY.................................. 15
ARTICLE III
PAYMENT ACCOUNT....................................................... 16
SECTION 301. PAYMENT ACCOUNT.......................................... 16
ARTICLE IV
DISTRIBUTIONS; REDEMPTION............................................. 16
SECTION 401. DISTRIBUTIONS............................................ 16
SECTION 402. REDEMPTION............................................... 17
SECTION 403. SUBORDINATION OF COMMON SECURITIES....................... 19
SECTION 404. PAYMENT PROCEDURES....................................... 19
SECTION 405. TAX RETURNS AND REPORTS.................................. 19
SECTION 406. PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST.............. 20
SECTION 407. PAYMENTS UNDER INDENTURE................................. 20
ARTICLE V
TRUST SECURITIES CERTIFICATES......................................... 20
SECTION 501. INITIAL OWNERSHIP........................................ 20
SECTION 502. THE TRUST SECURITIES CERTIFICATES........................ 20
SECTION 503. EXECUTION, AUTHENTICATION AND DELIVERY OF
TRUST SECURITIES CERTIFICATES......................... 21
SECTION 504. REGISTRATION OF TRANSFER AND EXCHANGE OF
PREFERRED SECURITIES CERTIFICATES..................... 21
SECTION 505. MUTILATED, DESTROYED, LOST OR STOLEN TRUST
SECURITIES CERTIFICATES............................... 22
SECTION 506. PERSONS DEEMED SECURITYHOLDERS........................... 23
SECTION 507. ACCESS TO LIST OF SECURITYHOLDERS' NAMES
AND ADDRESSES......................................... 23
SECTION 508. MAINTENANCE OF OFFICE OR AGENCY.......................... 23
SECTION 509. APPOINTMENT OF PAYING AGENT.............................. 24
SECTION 510. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR.............. 24
SECTION 511. PREFERRED SECURITIES CERTIFICATES........................ 24
SECTION 512. [Intentionally Omitted].................................. 25
SECTION 513. [Intentionally Omitted].................................. 25
SECTION 514. RIGHTS OF SECURITYHOLDERS................................ 25
ARTICLE VI
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING............................. 26
-i-
<PAGE> 3
SECTION 601. LIMITATIONS ON VOTING RIGHTS.............................. 26
SECTION 602. NOTICE OF MEETINGS........................................ 27
SECTION 603. MEETINGS OF PREFERRED SECURITYHOLDERS..................... 27
SECTION 604. VOTING RIGHTS............................................. 27
SECTION 605. PROXIES, ETC.............................................. 27
SECTION 606. SECURITYHOLDER ACTION BY WRITTEN CONSENT.................. 28
SECTION 607. RECORD DATE FOR VOTING AND OTHER PURPOSES................. 28
SECTION 608. ACTS OF SECURITYHOLDERS................................... 28
SECTION 609. INSPECTION OF RECORDS..................................... 29
ARTICLE VII
REPRESENTATIONS AND WARRANTIES......................................... 29
SECTION 701. REPRESENTATIONS AND WARRANTIES OF THE BANK AND
THE PROPERTY TRUSTEE.................................. 29
SECTION 702. REPRESENTATIONS AND WARRANTIES OF THE DELAWARE
BANK AND THE DELAWARE TRUSTEE......................... 31
SECTION 703. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR............... 32
ARTICLE VIII
TRUSTEES............................................................... 32
SECTION 801. CERTAIN DUTIES AND RESPONSIBILITIES....................... 32
SECTION 802. CERTAIN NOTICES........................................... 34
SECTION 803. CERTAIN RIGHTS OF PROPERTY TRUSTEE........................ 34
SECTION 804. NOT RESPONSIBLE FOR RECITALS OR USE OF PROCEEDS........... 36
SECTION 805. MAY HOLD SECURITIES....................................... 36
SECTION 806. COMPENSATION; INDEMNITY; FEES............................. 36
SECTION 807. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY
OF TRUSTEES........................................... 37
SECTION 808. CONFLICTING INTERESTS..................................... 38
SECTION 809. CO-TRUSTEES AND SEPARATE TRUSTEE.......................... 38
SECTION 810. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR......... 39
SECTION 811. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.................... 41
SECTION 812. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION
TO BUSINESS........................................... 41
SECTION 813. PREFERENTIAL COLLECTION OF CLAIMS AGAINST
DEPOSITOR OR TRUST.................................... 42
SECTION 814. REPORTS BY PROPERTY TRUSTEE............................... 42
SECTION 815. REPORTS TO THE PROPERTY TRUSTEE........................... 42
SECTION 816. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.......... 42
SECTION 817. NUMBER OF TRUSTEES........................................ 42
SECTION 818. DELEGATION OF POWER....................................... 43
SECTION 819. VOTING.................................................... 43
ARTICLE IX
DISSOLUTION, LIQUIDATION AND MERGER.................................... 43
SECTION 901. DISSOLUTION UPON EXPIRATION DATE.......................... 43
SECTION 902. EARLY TERMINATION......................................... 43
SECTION 903. TERMINATION............................................... 44
SECTION 904. LIQUIDATION............................................... 44
SECTION 905. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR
REPLACEMENTS OF THE TRUST............................. 46
ARTICLE X
MISCELLANEOUS PROVISIONS............................................... 47
SECTION 1001. LIMITATION OF RIGHTS OF SECURITYHOLDERS.................. 47
SECTION 1002. AMENDMENT................................................ 47
SECTION 1003. SEPARABILITY............................................. 49
SECTION 1004. GOVERNING LAW............................................ 49
SECTION 1005. PAYMENTS DUE ON NON-BUSINESS DAY......................... 49
-ii-
<PAGE> 4
SECTION 1006. SUCCESSORS................................................ 50
SECTION 1007. HEADINGS.................................................. 50
SECTION 1008. REPORTS, NOTICES AND DEMANDS.............................. 50
SECTION 1009. AGREEMENT NOT TO PETITION................................. 51
SECTION 1010. TRUST INDENTURE ACT; CONFLICT WITH TRUST
INDENTURE ACT.......................................... 51
SECTION 1011. ACCEPTANCE OF TERMS OF TRUST AGREEMENT,
GUARANTEE AND INDENTURE................................ 51
-iii-
<PAGE> 5
CROSS-REFERENCE TABLE SECTION OF
SECTION OF AMENDED
TRUST INDENTURE ACT AND RESTATED
OF 1939, AS AMENDED TRUST AGREEMENT
- -------------------- ---------------
310(a)(1).................................................... 807
310(a)(2).................................................... 807
310(a)(3).................................................... 807
310(a)(4).................................................... 207(a)(ii)
310(b)....................................................... 808
311(a)....................................................... 813
311(b)....................................................... 813
312(a)....................................................... 507
312(b)....................................................... 507
312(c)....................................................... 507
313(a)....................................................... 814(a)
313(a)(4).................................................... 814(b)
313(b)....................................................... 814(b)
313(c)....................................................... 1008
313(d)....................................................... 814(b)
314(a)....................................................... 815
314(b)....................................................... Not Applicable
314(c)(1).................................................... 816
314(c)(2).................................................... 816
314(c)(3).................................................... Not Applicable
314(d)....................................................... Not Applicable
314(e)....................................................... 101, 816
315(a)....................................................... 801(a), 803(a)
315(b)....................................................... 802, 1008
315(c)....................................................... 801(a)
315(d)....................................................... 801, 803
316(a)(2).................................................... Not Applicable
316(b)....................................................... Not Applicable
316(c)....................................................... 607
317(a)(1).................................................... Not Applicable
317(a)(2).................................................... Not Applicable
317(b)....................................................... 509
318(a)....................................................... 1010
Note: This Cross-Reference Table does not constitute part of this Agreement and
shall not affect any interpretation of any of its terms or provisions.
-iv-
<PAGE> 6
AMENDED AND RESTATED TRUST AGREEMENT
AMENDED AND RESTATED TRUST AGREEMENT, dated as of _________________, 1998,
among (i) ABINGTON BANCORP, INC., a Massachusetts corporation (including any
successors or assigns, the "Depositor"), (ii) STATE STREET BANK AND TRUST
COMPANY, a trust company duly organized and existing under the laws of the
Commonwealth of Massachusetts, as property trustee (the "Property Trustee" and,
in its separate corporate capacity and not in its capacity as Property Trustee,
the "Bank"), (iii) WILMINGTON TRUST COMPANY, a Delaware banking corporation duly
organized and existing under the laws of the State of Delaware, as Delaware
trustee (the "Delaware Trustee," and, in its separate corporate capacity and not
in its capacity as Delaware Trustee, the "Delaware Bank") (iv)
James P. McDonough, an individual, Robert M. Lallo, an individual, and
Lewis Paragona, an individual, each of whose address is c/o Abington Bancorp,
Inc., 536 Washington Street, Abington, Massachusetts 02351 (each an
"Administrative Trustee" and collectively the "Administrative Trustees") (the
Property Trustee, the Delaware Trustee and the Administrative Trustees referred
to collectively as the "Trustees"), and (v) the several Holders (as hereinafter
defined).
RECITALS
WHEREAS, the Depositor, the Delaware Trustee, and James P. McDonough,
Robert M. Lallo, and Lewis Paragona, each as an Administrative Trustee, have
heretofore duly declared and established a business trust pursuant to the
Delaware Business Trust Act (as hereinafter defined) by the entering into of
that certain Trust Agreement, dated as of April ___, 1998 (the "Original Trust
Agreement"), and by the execution and filing by the Delaware Trustee, the
Depositor and the Administrative Trustees with the Secretary of State of the
State of Delaware of the Certificate of Trust, filed on April ___ , 1998, the
form of which is attached as Exhibit A; and
WHEREAS, the Depositor, the Delaware Trustee, the Property Trustee and the
Administrative Trustees desire to amend and restate the Original Trust Agreement
in its entirety as set forth herein to provide for, among other things, (i) the
issuance of the Common Securities (as defined herein) by the Trust (as defined
herein) to the Depositor; (ii) the issuance and sale of the Preferred Securities
(as defined herein) by the Trust pursuant to the Underwriting Agreement (as
defined herein); (iii) the acquisition by the Trust from the Depositor of all of
the right, title and interest in the Debentures (as defined herein); and (iv)
the appointment of the Trustees;
NOW THEREFORE, in consideration of the agreements and obligations set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each party, for the benefit of the
other parties and for the benefit of the Securityholders (as defined herein),
hereby amends and restates the Original Trust Agreement in its entirety and
agrees as follows:
ARTICLE I
DEFINED TERMS
SECTION 101. DEFINITIONS. For all purposes of this Trust Agreement, except
as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article I have the meanings assigned to them
in this Article I and include the plural as well as the singular;
(b) all other terms used herein that are defined in the Trust Indenture Act,
either directly or by reference therein, have the meanings assigned to them
therein;
(c) unless the context otherwise requires, any reference to an "Article" or
a "Section" refers to an Article or a Section, as the case may be, of this Trust
Agreement; and
-1-
<PAGE> 7
(d) the words "herein", "hereof" and "hereunder" and other words of similar
import refer to this Trust Agreement as a whole and not to any particular
Article, Section or other subdivision.
"Act" has the meaning specified in Section 608.
"Additional Amount" means, with respect to Trust Securities of a given
Liquidation Amount and/or a given period, the amount of additional interest
accrued on interest in arrears and paid by the Depositor on a Like Amount of
Debentures for such period.
"Additional Interest" has the meaning specified in Section 1.1 of the
Indenture.
"Administrative Trustee" means each of James P. McDonough, Robert M. Lallo,
and Lewis Paragona, solely in his capacity as Administrative Trustee of the
Trust formed and continued hereunder and not in his individual capacity, or such
Administrative Trustee's successor in interest in such capacity, or any
successor trustee appointed as herein provided.
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities or other ownership interests of the
specified Person, any Person 10% or more of whose outstanding voting securities
or other ownership interests are directly or indirectly owned, controlled or
held with power to vote by the specified Person; (c) any Person directly or
indirectly controlling, controlled by, or under common control with the
specified Person; (d) a partnership in which the specified Person is a general
partner; (e) any officer or director of the specified Person; and (f) if the
specified Person is an individual, any entity of which the specified Person is
an officer, director or general partner.
"Authenticating Agent" means an authenticating agent with respect to the
Preferred Securities appointed by the Property Trustee pursuant to Section 503.
"Bank" has the meaning specified in the Preamble to this Trust Agreement.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction in the
premises adjudging such Person a bankrupt or insolvent, or approving as properly
filed a petition seeking liquidation or reorganization of or in respect of such
Person under the United States Bankruptcy Code of 1978, as amended, or any other
similar applicable federal or state law, and the continuance of any such decree
or order unvacated and unstayed for a period of 90 days; or the commencement of
an involuntary case under the United States Bankruptcy Code of 1978, as amended,
in respect of such Person, which shall continue undismissed for a period of 90
days or entry of an order for relief in such case; or the entry of a decree or
order of a court having jurisdiction in the premises for the appointment on the
ground of insolvency or bankruptcy of a receiver, custodian, liquidator, trustee
or assignee in bankruptcy or insolvency of such Person or of its property, or
for the winding up or liquidation of its affairs, and such decree or order shall
have remained in force unvacated and unstayed for a period of 90 days; or
(b) the institution by such Person of proceedings to be adjudicated a
voluntary bankrupt, or the consent by such Person to the filing of a bankruptcy
proceeding against it, or the filing by such Person of a petition or answer or
consent seeking liquidation or reorganization under the United States Bankruptcy
Code of 1978, as amended, or other similar applicable Federal or State law, or
the consent by such Person to the filing of any such petition or to the
appointment on the ground of insolvency or bankruptcy of a receiver or custodian
or liquidator or trustee or assignee in bankruptcy or insolvency of such Person
or of its property, or shall make a general assignment for the benefit of
creditors.
"Bankruptcy Laws" has the meaning specified in Section 1009.
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"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Depositor to have been duly adopted by the
Depositor's Board of Directors, or such committee of the Board of Directors or
officers of the Depositor to which authority to act on behalf of the Board of
Directors has been delegated, and to be in full force and effect on the date of
such certification, and delivered to the appropriate Trustee.
"Business Day" means a day other than a Saturday or Sunday, a day on which
banking institutions in the City of Boston are authorized or required by law,
executive order or regulation to remain closed, or a day on which the Property
Trustee's Corporate Trust Office or the Corporate Trust Office of the Debenture
Trustee is closed for business.
"Certificate of Trust" means the certificate of trust filed with the
Secretary of State of the State of Delaware with respect to the Trust, as
amended or restated from time to time.
"Closing Date" means the date of execution and delivery of this Trust
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Security" means an undivided beneficial interest in the assets of
the Trust, having a Liquidation Amount of $10 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Common Securities Certificate" means a certificate evidencing ownership of
Common Securities, substantially in the form attached as Exhibit B.
"Corporate Trust Office" means the office at which, at any particular time,
the corporate trust business of the Property Trustee or the Debenture Trustee,
as the case may be, shall be principally administered, which office at the date
hereof, in each such case, is located at Two International Place, 4th Floor,
Boston, Massachusetts 02110, Attention: Corporate Trust Department.
"Debenture Event of Default" means an "Event of Default" as defined in
Section 7.1 of the Indenture.
"Debenture Redemption Date" means, with respect to any Debentures to be
redeemed under the Indenture, the date fixed for redemption under the Indenture.
"Debenture Trustee" means State Street Bank and Trust Company, a trust
company organized under the laws of The Commonwealth of Massachusetts and any
successor thereto, as trustee under the Indenture.
"Debentures" means the $11,340,210 aggregate principal amount (or up to
$13,041,250 aggregate principal amount if the Underwriter exercises its Option
and there is an Option Closing Date) of the Depositor's % Junior Subordinated
Debentures due 2029, issued pursuant to the Indenture.
"Delaware Bank" has the meaning specified in the Preamble to this Trust
Agreement.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Delaware Code Sections 3801 et seq. as it may be amended from time to
time.
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"Delaware Trustee" means the commercial bank or trust company identified as
the "Delaware Trustee" in the Preamble to this Trust Agreement solely in its
capacity as Delaware Trustee of the Trust formed and continued hereunder and not
in its individual capacity, or its successor in interest in such capacity, or
any successor trustee appointed as herein provided.
"Depositor" has the meaning specified in the Preamble to this Trust
Agreement.
"Distribution Date" has the meaning specified in Section 401(a).
"Distributions" means amounts payable in respect of the Trust Securities as
provided in Section 401.
"Early Termination Event" has the meaning specified in Section 902.
"Event of Default" means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) the occurrence of a Debenture Event of Default; or
(b) default by the Trust or the Property Trustee in the payment of any
Distribution when it becomes due and payable, and continuation of such default
for a period of 30 days; or
(c) default by the Trust or the Property Trustee in the payment of any
Redemption Price of any Trust Security when it becomes due and payable; or
(d) default in the performance, or breach, in any material respect, of any
covenant or warranty of the Trustees in this Trust Agreement (other than a
covenant or warranty a default in the performance of which or the breach of
which is dealt with in clause (b) or (c), above) and continuation of such
default or breach for a period of 60 days after there has been given, by
registered or certified mail, to the defaulting Trustee or Trustees by the
Holders of at least 25% in aggregate Liquidation Amount of the Outstanding
Preferred Securities a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(e) the occurrence of a Bankruptcy Event with respect to the Property
Trustee and the failure by the Depositor to appoint a successor Property Trustee
within 60 days thereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expense Agreement" means the Agreement as to Expenses and Liabilities
between the Depositor and the Trust, substantially in the form attached as
Exhibit C, as amended from time to time.
"Expiration Date" has the meaning specified in Section 901.
"Extension Period" has the meaning specified in Section 4.1 of the
Indenture.
"Guarantee" means the Preferred Securities Guarantee Agreement executed and
delivered by the Depositor and State Street Bank and Trust Company, as trustee,
contemporaneously with the execution and delivery of this Trust Agreement, for
the benefit of the Holders of the Preferred Securities, as amended from time to
time.
"Indenture" means the Indenture, dated as of , 1998, between the Depositor
and the Debenture Trustee, as trustee, as amended or supplemented from time to
time pertaining to the Debentures of the Depositor.
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"Investment Company Act," means the Investment Company Act of 1940, as
amended, as in effect at the date of execution of this instrument.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of trust,
adverse ownership interest, hypothecation, assignment, security interest or
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to the principal amount of
Debentures to be contemporaneously redeemed in accordance with the Indenture and
the proceeds of which shall be used to pay the Redemption Price of such Trust
Securities; and (b) with respect to a distribution of Debentures to Holders of
Trust Securities in connection with a dissolution or liquidation of the Trust,
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the Holder to whom such Debentures are distributed. Each
Debenture distributed pursuant to clause (b) above shall carry with it
accumulated interest in an amount equal to the accumulated and unpaid interest
then due on such Debenture.
"Liquidation Amount" means the stated amount of $10 per Trust Security.
"Liquidation Date" means the date on which Debentures are to be distributed
to Holders of Trust Securities in connection with a dissolution and liquidation
of the Trust pursuant to Section 904(a).
"Liquidation Distribution" has the meaning specified in Section 904(d).
"Officers' Certificate" means a certificate signed by the President or a
Vice President and by the Treasurer or an Assistant Treasurer or the Controller
or an Assistant Controller or the Secretary or an Assistant Secretary, of the
Depositor, and delivered to the appropriate Trustee. One of the officers signing
an Officers' Certificate given pursuant to Section 816 shall be the principal
executive, financial or accounting officer of the Depositor. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Trust Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate has read
the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer, such
condition or covenant has been complied with.
"Opinion of Counsel" means an opinion in writing of legal counsel, who may
be counsel for the Trust, the Property Trustee, the Delaware Trustee or the
Depositor, but not an employee of any thereof, and who shall be reasonably
acceptable to the Property Trustee.
"Option" means the grant by the Trust to the Underwriters of an option to
purchase all or any portion of an additional 150,000 Preferred Securities,
pursuant to the terms of the Underwriting Agreement.
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"Option Closing Date" means the time, date of payment and delivery of the
Preferred Securities Certificates purchased pursuant to the Underwriters'
exercise of the Option, as more particularly described in the Underwriting
Agreement.
"Original Trust Agreement" has the meaning specified in the Recitals to this
Trust Agreement.
"Outstanding", when used with respect to Preferred Securities, means, as of
the date of determination, all Preferred Securities theretofore executed and
delivered under this Trust Agreement, except:
(a) Preferred Securities theretofore canceled by the Property Trustee or
delivered to the Property Trustee for cancellation;
(b) Preferred Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Property Trustee or any
Paying Agent for the Holders of such Preferred Securities; provided that, if
such Preferred Securities are to be redeemed, notice of such redemption has been
duly given pursuant to this Trust Agreement; and
(c) Preferred Securities which have been paid or in exchange for or in lieu
of which other Preferred Securities have been executed and delivered pursuant to
Sections 504, 505 and 511; provided, however, that in determining whether the
Holders of the requisite Liquidation Amount of the Outstanding Preferred
Securities have given any request, demand, authorization, direction, notice,
consent or waiver hereunder, Preferred Securities owned by the Depositor, any
Trustee or any Affiliate of the Depositor or any Trustee shall be disregarded
and deemed not to be Outstanding, except that (a) in determining whether any
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Preferred Securities
that such Trustee knows to be so owned shall be so disregarded; and (b) the
foregoing shall not apply at any time when all of the Outstanding Preferred
Securities are owned by the Depositor, one or more of the Trustees and/or any
such Affiliate. Preferred Securities so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Administrative Trustees the pledgee's right so to act with
respect to such Preferred Securities and the pledgee is not the Depositor or any
other Obligor upon the Preferred Securities or a Person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Depositor or any Affiliate of the Depositor.
"Paying Agent" means any paying agent or co-paying agent appointed pursuant
to Section 509 and shall initially be the Bank.
"Payment Account" means a segregated non-interest-bearing corporate trust
account maintained by the Property Trustee with the Bank in its trust department
for the benefit of the Securityholders in which all amounts paid in respect of
the Debentures shall be held and from which the Property Trustee shall make
payments to the Securityholders in accordance with Sections 401 and 402.
"Person" means any individual, corporation, partnership, joint venture,
trust, limited liability company or corporation, unincorporated organization or
government or any agency or political subdivision thereof.
"Preferred Security" means an undivided beneficial interest in the assets of
the Trust, having a Liquidation Amount of $10 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Preferred Securities Certificate", means a certificate evidencing ownership
of Preferred Securities, substantially in the form attached as Exhibit D.
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"Property Trustee" means the commercial bank or trust company identified as
the "Property Trustee," in the Preamble to this Trust Agreement solely in its
capacity as Property Trustee of the Trust heretofore formed and continued
hereunder and not in its individual capacity, or its successor in interest in
such capacity, or any successor property trustee appointed as herein provided.
"Redemption Date" means, with respect to any Trust Security to be redeemed,
the date fixed for such redemption by or pursuant to this Trust Agreement;
provided that each Debenture Redemption Date and the stated maturity of the
Debentures shall be a Redemption Date for a Like Amount of Trust Securities.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, paid by the Depositor upon the concurrent
redemption of a Like Amount of Debentures, allocated on a pro rata basis (based
on Liquidation Amounts) among the Trust Securities.
"Relevant Trustee" shall have the meaning specified in Section 810.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 504.
"Securityholder" or "Holder" means a Person in whose name a Trust Security
or Securities are registered in the Securities Register; any such Person is a
beneficial owner within the meaning of the Delaware Business Trust Act.
"Trust" means Abington Bancorp Capital Trust, the Delaware business trust
created and continued hereby.
"Trust Agreement" means this Amended and Restated Trust Agreement, as the
same may be modified, amended or supplemented in accordance with the applicable
provisions hereof, including all exhibits hereto, including, for all purposes of
this Trust Agreement and any such modification, amendment or supplement, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this Trust Agreement and any such modification, amendment or supplement,
respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as
in force at the date as of which this instrument was executed; provided,
however, that in the event the Trust Indenture Act of 1939, as amended, is
amended after such date, "Trust Indenture Act" means, to the extent required by
any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trust Property" means (a) the Debentures; (b) the rights of the Property
Trustee under the Guarantee; (c) any cash on deposit in, or owing to, the
Payment Account; and (d) all proceeds and rights in respect of the foregoing and
any other property and assets for the time being held or deemed to be held by
the Property Trustee pursuant to the provisions of this Trust Agreement.
"Trust Security" means any one of the Common Securities or the Preferred
Securities.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Preferred Securities Certificates.
"Trustees" means, collectively, the Property Trustee, the Delaware Trustee
and the Administrative Trustees.
"Underwriters" means Tucker Anthony Incorporated, McConnell, Budd & Downes,
Inc. and the other underwriters named in the Underwriting Agreement.
"Underwriting Agreement" means the Underwriting Agreement, dated as of
___________, 1998, among the Trust, the Depositor and the Underwriters named
therein.
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ARTICLE II
ESTABLISHMENT OF THE TRUST
SECTION 201. NAME.
The Trust created and continued hereby shall be known as "Abington Bancorp
Capital Trust", as such name may be modified from time to time by the
Administrative Trustees following written notice to the Holders of Trust
Securities and the other Trustees, in which name the Trustees may engage in the
transactions contemplated hereby, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
SECTION 202. OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF BUSINESS.
The address of the Delaware Trustee in the State of Delaware is c/o
Wilmington Trust Company, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration, or
such other address in the State of Delaware as the Delaware Trustee may
designate by written notice to the Securityholders and the Depositor. The
principal executive office of the Trust is c/o Abington Bancorp, Inc., 536
Washington Street, Abington, Massachusetts 02351.
SECTION 203. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL EXPENSES.
The Trustees acknowledge receipt in trust from the Depositor in connection
with the Original Trust Agreement of the sum of $10, which constituted the
initial Trust Property. The Depositor shall pay organizational expenses of the
Trust as they arise or shall, upon request of any Trustee, promptly reimburse
such Trustee for any such expenses paid by such Trustee. The Depositor shall
make no claim upon the Trust Property for the payment of such expenses.
SECTION 204. ISSUANCE OF THE PREFERRED SECURITIES.
On ___________, 1998, the Depositor and an Administrative Trustee, on behalf
of the Trust and pursuant to the Original Trust Agreement, executed and
delivered the Underwriting Agreement. Contemporaneously with the execution and
delivery of this Trust Agreement, an Administrative Trustee, on behalf of the
Trust, shall execute in accordance with Section 502 and deliver in accordance
with the Underwriting Agreement, Preferred Securities Certificates, registered
in the name of the Persons entitled thereto, in an aggregate amount of 1,100,000
Preferred Securities having an aggregate Liquidation Amount of $11,000,000
against receipt of the aggregate purchase price of such Preferred Securities of
$11,000,000, which amount such Administrative Trustee shall promptly deliver to
the Property Trustee. If the Underwriters exercise their Option and there is an
Option Closing Date, then an Administrative Trustee, on behalf of the Trust,
shall execute in accordance with Section 502 and deliver in accordance with the
Underwriting Agreement, Preferred Securities Certificates, registered in the
name of the Persons entitled thereto, in an aggregate amount of up to 165,000
Preferred Securities having an aggregate Liquidation Amount of up to
$1,650,000 against receipt of the aggregate purchase price of such Preferred
Securities equal to the product of $10 multiplied by the number of Preferred
Securities purchased pursuant to the Option, which amount such Administrative
Trustee shall promptly deliver to the Property Trustee.
SECTION 205. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND PURCHASE OF
DEBENTURES.
(a) Contemporaneously with the execution and delivery of this Trust
Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in
accordance with Section 502 and deliver to the Depositor, Common Securities
Certificates, registered in the name of the Depositor, in an aggregate amount of
34,021 Common Securities having an aggregate Liquidation Amount of $340,210
against payment by the Depositor of such amount. Contemporaneously therewith, an
Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase
from the Depositor
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Debentures, registered in the name of the Property Trustee on behalf of the
Trust and having an aggregate principal amount equal to $11,340,210, and, in
satisfaction of the purchase price for such Debentures, the Property Trustee, on
behalf of the Trust, shall deliver to the Depositor the sum of $11,340,210.
(b) If the Underwriters exercise the Option and there is an Option Closing
Date, then an Administrative Trustee, on behalf of the Trust, shall execute in
accordance with Section 502 and deliver to the Depositor, Common Securities
Certificates, registered in the name of the Depositor, in an aggregate amount of
up to 5,104 Common Securities having an aggregate Liquidation Amount of up to
$51,040 against payment by the Depositor of such amount. Contemporaneously
therewith, an Administrative Trustee, on behalf of the Trust, shall subscribe to
and purchase from the Depositor, Debentures, registered in the name of the Trust
and having an aggregate principal amount of up to $1,701,040, and, in
satisfaction of the purchase price of such Debentures, the Property Trustee, on
behalf of the Trust, shall deliver to the Depositor the amount received from one
of the Administrative Trustees pursuant to the last sentence of Section 204.
SECTION 206. DECLARATION OF TRUST.
The exclusive purposes and functions of the Trust are (a) to issue and sell
Trust Securities and use the proceeds from such sale to acquire the Debentures;
and (b) to engage in those activities necessary, convenient or incidental
thereto. The Depositor hereby appoints the Trustees as trustees of the Trust, to
have all the rights, powers and duties to the extent set forth herein, and the
Trustees hereby accept such appointment. The Property Trustee hereby declares
that it shall hold the Trust Property in trust upon and subject to the
conditions set forth herein for the benefit of the Securityholders. The
Administrative Trustees shall have all rights, powers and duties set forth
herein and in accordance with applicable law with respect to accomplishing the
purposes of the Trust. The Delaware Trustee shall not be entitled to exercise
any powers, nor shall the Delaware Trustee have any of the duties and
responsibilities, of the Property Trustee or the Administrative Trustees set
forth herein. The Delaware Trustee shall be one of the Trustees of the Trust for
the sole and limited purpose of fulfilling the requirements of Section 3807 of
the Delaware Business Trust Act.
SECTION 207. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS.
(a) The Trustees shall conduct the affairs of the Trust in accordance with
the terms of this Trust Agreement. Subject to the limitations set forth in
paragraph (b) of this Section 207 and Article VIII, and in accordance with the
following provisions (i) and (ii), the Administrative Trustees shall have the
authority to enter into all transactions and agreements determined by the
Administrative Trustees to be appropriate in exercising the authority, express
or implied, otherwise granted to the Administrative Trustees under this Trust
Agreement, and to perform all acts in furtherance thereof, including without
limitation, the following:
(i) As among the Trustees, each Administrative Trustee, acting singly or
jointly, shall have the power and authority to act on behalf of the Trust
with respect to the following matters:
(A)the issuance and sale of the Trust Securities;
(B) to cause the Trust to enter into, and to execute, deliver and
perform on behalf of the Trust, the Expense Agreement and such other
agreements or documents as may be necessary or desirable in connection
with the purposes and function of the Trust;
(C) assisting in the registration of the Preferred Securities under
the Securities Act of 1933, as amended, and under state securities or
blue sky laws, and the qualification of this Trust Agreement as a trust
indenture under the Trust Indenture Act;
(D) assisting in the listing of the Preferred Securities upon the
Nasdaq National Market or such securities exchange or exchanges as shall
be determined by the Depositor and the registration of the
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Preferred Securities under the Exchange Act, and the preparation and
filing of all periodic and other reports and other documents pursuant to
the foregoing;
(E) the sending of notices (other than notices of default) and other
information regarding the Trust Securities and the Debentures to the
Securityholders in accordance with this Trust Agreement;
(F) the appointment of a Paying Agent, Authenticating Agent and
Securities Registrar in accordance with this Trust Agreement;
(G) to the extent provided in this Trust Agreement, the winding up
of the affairs of and liquidation of the Trust and the preparation,
execution and filing of the certificate of cancellation with the
Secretary of State of the State of Delaware;
(H) to take all action that may be necessary or appropriate for the
preservation and the continuation of the Trust's valid existence,
rights, franchises and privileges as a statutory business trust under
the laws of the State of Delaware and of each other jurisdiction in
which such existence is necessary to protect the limited liability of
the Holders of the Preferred Securities or to enable the Trust to effect
the purposes for which the Trust was created; and
(I) the taking of any action incidental to the foregoing as the
Administrative Trustees may from time to time determine is necessary or
advisable to give effect to the terms of this Trust Agreement for the
benefit of the Securityholders (without consideration of the effect of
any such action on any particular Securityholder).
(ii) As among the Trustees, the Property Trustee shall have the power,
duty and authority to act on behalf of the Trust with respect to the
following matters:
(A) the establishment of the Payment Account;
(B) the receipt of the Debentures;
(C) the collection of interest, principal and any other payments
made in respect of the Debentures in the Payment Account;
(D) the distribution of amounts owed to the Securityholders in
respect of the Trust Securities in accordance with the terms of this
Trust Agreement;
(E) the exercise of all of the rights, powers and privileges of a
holder of the Debentures;
(F) the sending of notices of default and other information
regarding the Trust Securities and the Debentures to the Securityholders
in accordance with this Trust Agreement;
(G) the distribution of the Trust Property in accordance with the
terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the winding up
of the affairs of and liquidation of the Trust;
(I) after an Event of Default, the taking of any action incidental
to the foregoing as the Property Trustee may from time to time determine
is necessary or advisable to give effect to the terms of this Trust
Agreement and protect and conserve the Trust Property for the benefit of
the Securityholders (without consideration of the effect of any such
action on any particular Securityholder);
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(J) registering transfers of the Trust Securities in accordance with
this Trust Agreement; and
(K) except as otherwise provided in this Section 207(a)(ii), the
Property Trustee shall have none of the duties, liabilities, powers or
the authority of the Administrative Trustees set forth in Section
207(a)(i).
(b) So long as this Trust Agreement remains in effect, the Trust (or the
Trustees acting on behalf of the Trust) shall not undertake any business,
activities or transaction except as expressly provided herein or contemplated
hereby. In particular, the Trustees shall not (i) acquire any investments or
engage in any activities not authorized by this Trust Agreement; (ii) sell,
assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of
any of the Trust Property or interests therein, including to Securityholders,
except as expressly provided herein; (iii) take any action that would cause the
Trust to fail or cease to qualify as a "grantor trust" for United States federal
income tax purposes; (iv) incur any indebtedness for borrowed money or issue any
other debt; or (v) take or consent to any action that would result in the
placement of a Lien on any of the Trust Property. The Administrative Trustees
shall defend all claims and demands of all Persons at any time claiming any Lien
on any of the Trust Property adverse to the interest of the Trust or the
Securityholders in their capacity as Securityholders.
(c) In connection with the issue and sale of the Preferred Securities, the
Depositor shall have the right and responsibility to assist the Trust with
respect to, or effect on behalf of the Trust, the following (and any actions
taken by the Depositor in furtherance of the following prior to the date of this
Trust Agreement are hereby ratified and confirmed in all respects):
(i) the preparation and filing by the Trust with the Commission and the
execution on behalf of the Trust of a registration statement on the
appropriate form in relation to the Preferred Securities and the Debentures,
including any amendments thereto;
(ii) the determination of the States in which to take appropriate action
to qualify or, register for sale all or part of the Preferred Securities and
to do any and all such acts, other than actions which must be taken by or on
behalf of the Trust, and advise the Trustees of actions they must take on
behalf of the Trust, and prepare for execution and filing any documents to
be executed and filed by the Trust or on behalf of the Trust, as the
Depositor deems necessary or advisable in order to comply with the
applicable laws of any such States;
(iii) the preparation for filing by the Trust and execution on behalf of
the Trust of an application to the Nasdaq National Market or
a national stock exchange or other organizations for listing upon notice of
issuance of any Preferred Securities and to file or cause an Administrative
Trustee to file thereafter with such exchange or organization such
notifications and documents as may be necessary from time to time;
(iv) the preparation for filing by the Trust with the Commission and the
execution on behalf of the Trust of a registration statement on Form 8-A
relating to the registration of the Preferred Securities under Section 12(b)
or 12(g) of the Exchange Act, including any amendments thereto;
(v) the negotiation of the terms of, and the execution and delivery of,
the Underwriting Agreement providing for the sale of the Preferred
Securities; and
(vi) the taking of any other actions necessary or desirable to carry out
any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the Administrative
Trustees are authorized and directed to conduct the affairs of the Trust and to
operate the Trust so that the Trust shall not be deemed to be an "investment
company" required to be registered under the Investment Company Act, shall be
classified as a "grantor trust" and not as an association taxable as a
corporation for United States federal income tax purposes and so that the
Debentures shall be treated as indebtedness of the Depositor for United States
federal income tax purposes. In this connection, subject to Section 1002, the
Depositor and the Administrative Trustees are authorized to take any action, not
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inconsistent with applicable law or this Trust Agreement, that each of the
Depositor and the Administrative Trustees determines in their discretion to be
necessary or desirable for such purposes.
SECTION 208. ASSETS OF TRUST.
The assets of the Trust shall consist of the Trust Property.
SECTION 209. TITLE TO TRUST PROPERTY.
Legal title to all Trust Property shall be vested at all times in the
Property Trustee (in its capacity as such) and shall be held and administered by
the Property Trustee for the benefit of the Securityholders in accordance with
this Trust Agreement.
ARTICLE III
PAYMENT ACCOUNT
SECTION 301. PAYMENT ACCOUNT.
(a) On or prior to the Closing Date, the Property Trustee shall establish
the Payment Account. The Property Trustee and any agent of the Property Trustee
shall have exclusive control and sole right of withdrawal with respect to the
Payment Account for the purpose of making deposits and withdrawals from the
Payment Account in accordance with this Trust Agreement. All monies and other
property deposited or held from time to time in the Payment Account shall be
held by the Property Trustee in the Payment Account for the exclusive benefit of
the Securityholders and for distribution as herein provided, including (and
subject to) any priority of payments provided for herein.
(b) The Property Trustee shall deposit in the Payment Account, promptly upon
receipt, all payments of principal of or interest on, and any other payments or
proceeds with respect to, the Debentures. Amounts held in the Payment Account
shall not be invested by the Property Trustee pending distribution thereof.
ARTICLE IV
DISTRIBUTIONS; REDEMPTION
SECTION 401. DISTRIBUTIONS.
(a) Distributions on the Trust Securities shall be cumulative, and shall
accumulate whether or not there are funds of the Trust available for the payment
of Distributions. Distributions shall accumulate from May , 1998, and, except
during any Extension Period with respect to the Debentures, shall be payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year, commencing on September 30, 1998. If any date on which a Distribution is
otherwise payable on the Trust Securities is not a Business Day, then the
payment of such Distribution shall be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay) with the same force and effect as if made on such date (each date on
which distributions are payable in accordance with this Section 401(a), a
"Distribution Date").
(b) The Trust Securities represent undivided beneficial interests in the
Trust Property. Distributions on the Trust Securities shall be payable at a rate
of ___% per annum of the Liquidation Amount of the Trust Securities. The amount
of Distributions payable for any full period shall be computed on the basis of a
360-day year of twelve 30-day months. The amount of Distributions for any
partial period shall be computed on the basis of the number of days elapsed in a
360-day year of twelve 30 day months. During any Extension Period with respect
to the Debentures, Distributions on the Preferred Securities shall be deferred
for a period equal to the Extension Period. The amount of Distributions payable
for any period shall include the Additional Amounts, if any.
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(c) Distributions on the Trust Securities shall be made by the Property
Trustee solely from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Trust has funds then on hand and
immediately available by 12:30 p.m., Boston time, on each Distribution Date in
the Payment Account for the payment of such Distributions.
(d) Distributions on the Trust Securities with respect to a Distribution
Date shall be payable to the Holders thereof as they appear on the Securities
Register for the Trust Securities on the relevant record date, which shall be
15th day of the month in which the Distribution is payable.
SECTION 402. REDEMPTION.
(a) On each Debenture Redemption Date at maturity of the Debentures, the
Trust shall be required to redeem a Like Amount of Trust Securities at the
Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee by
first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the Redemption Date to each Holder of Trust Securities to be redeemed,
at such Holder's address appearing in the Securities Register. The Property
Trustee shall have no responsibility for the accuracy of any CUSIP number
contained in such notice. All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the CUSIP number;
(iv) if less than all the outstanding Trust Securities are to be
redeemed, the identification and the aggregate Liquidation Amount of the
particular Trust Securities to be redeemed; and
(v) that, on the Redemption Date, the Redemption Price shall become due
and payable upon each such Trust Security to be redeemed and that
Distributions thereon shall cease to accumulate on and after said date.
(c) The Trust Securities redeemed on each Redemption Date shall be redeemed
at the Redemption Price with the proceeds from the contemporaneous redemption of
Debentures. Redemptions of the Trust Securities shall be made and the Redemption
Price shall be payable on each Redemption Date only to the extent that the Trust
has immediately available funds then on hand and available in the Payment
Account for the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect of any
Preferred Securities, then, by 12:00 noon, Boston time, on the Redemption Date,
subject to Section 402(c), the Property Trustee shall deposit with the Paying
Agent funds sufficient to pay the applicable Redemption Price and shall give the
Paying Agent irrevocable instructions and authority to pay the Redemption Price
to the Holders thereof upon surrender of their Preferred Securities
Certificates. Notwithstanding the foregoing, Distributions payable on or prior
to the Redemption Date for any Trust Securities called for redemption shall be
payable to the Holders of such Trust Securities as they appear on the Securities
Register for the Trust Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then upon the date of such deposit, all rights of
Securityholders holding Trust Securities so called for redemption shall cease,
except the right of such Securityholders to receive the Redemption Price and any
Distribution payable on or prior to the Redemption Date, but without interest,
and such Trust Securities shall cease to be Outstanding. In the event that any
date on which any Redemption Price is payable is not a Business Day, then
payment of the Redemption Price payable on such date shall be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay) with the same force and effect as if made on such
date. In the event that payment of the Redemption Price in respect of any Trust
Securities called for redemption is improperly withheld or refused and not paid
either by the Trust or by the Depositor pursuant
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to the Guarantee, Distributions on such Trust Securities shall continue to
accumulate, at the then applicable rate, from the Redemption Date originally
established by the Trust for such Trust Securities to the date such Redemption
Price is actually paid, in which case the actual payment date shall be the date
fixed for redemption for purposes of calculating the Redemption Price.
(e) Payment of the Redemption Price on the Trust Securities shall be made to
the record holders thereof as they appear on the Securities Register for the
Trust Securities on the relevant record date, which shall be the date 15 days
prior to the relevant Redemption Date.
(f) Subject to Section 403(a), if less than all the Outstanding Trust
Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated on a
pro rata basis (based on Liquidation Amounts) among the Common Securities and
the Preferred Securities. The particular Preferred Securities to be redeemed
shall be selected not more than 60 days prior to the Redemption Date by the
Property Trustee from the Outstanding Preferred Securities not previously called
for redemption, by such method (including, without limitation, by lot) as the
Property Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions (equal to the Liquidation Amount or an
integral multiple of the Liquidation Amount in excess thereof) of the
Liquidation Amount of Preferred Securities of a denomination larger than the
Liquidation Amount. The Property Trustee shall promptly notify the Securities
Registrar in writing of the Preferred Securities selected for redemption and, in
the case of any Preferred Securities selected for partial redemption, the
Liquidation Amount thereof to be redeemed. For all purposes of this Trust
Agreement, unless the context otherwise requires, all provisions relating to the
redemption of Preferred Securities shall relate, in the case of any Preferred
Securities redeemed or to be redeemed only in part, to the portion of the
Liquidation Amount of Preferred Securities which has been or is to be redeemed.
SECTION 403. SUBORDINATION OF COMMON SECURITIES.
(a) Payment of Distributions (including Additional Amounts, if applicable)
on, and the Redemption Price of, the Trust Securities, as applicable, shall be
made, subject to Section 402(f), pro rata among the Common Securities and the
Preferred Securities based on the Liquidation Amount of the Trust Securities;
provided, however, that if on any Distribution Date or Redemption Date any Event
of Default resulting from a Debenture Event of Default shall have occurred and
be continuing, no payment of any Distribution (including Additional Amounts, if
applicable) on, or Redemption Price of, any Common Security, and no other
payment on account of the redemption, liquidation or other acquisition of Common
Securities, shall be made unless payment in full in cash of all accumulated and
unpaid Distributions (including Additional Amounts, if applicable) on all
Outstanding Preferred Securities for all Distribution periods terminating on or
prior thereto, or in the case of payment of the Redemption Price the full amount
of such Redemption Price on all Outstanding Preferred Securities then called for
redemption, shall have been made or provided for, and all funds immediately
available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions (including Additional Amounts, if applicable) on,
or the Redemption Price of, Preferred Securities then due and payable.
(b) In the case of the occurrence of any Event of Default resulting from a
Debenture Event of Default, the Holder of Common Securities shall be deemed to
have waived any right to act with respect to any such Event of Default under
this Trust Agreement until the effect of all such Events of Default with respect
to the Preferred Securities shall have been cured, waived or otherwise
eliminated. Until any such Event of Default under this Trust Agreement with
respect to the Preferred Securities shall have been so cured, waived or
otherwise eliminated, the Property Trustee shall act solely on behalf of the
Holders of the Preferred Securities and not the Holder of the Common Securities,
and only the Holders of the Preferred Securities shall have the right to direct
the Property Trustee to act on their behalf.
SECTION 404. PAYMENT PROCEDURES.
Payments of Distributions (including Additional Amounts, if applicable) in
respect of the Preferred Securities shall be made by check mailed to the address
of the Person entitled thereto as such address shall appear on the Securities
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Register. Payments in respect of the Common Securities shall be made in such
manner as shall be mutually agreed between the Property Trustee and the Common
Securityholder.
SECTION 405. TAX RETURNS AND REPORTS.
The Administrative Trustees shall prepare (or cause to be prepared), at the
Depositor's expense, and file all United States federal, state and local tax and
information returns and reports required to be filed by or in respect of the
Trust. In this regard, the Administrative Trustees shall (a) prepare and file
(or cause to be prepared and filed) the appropriate Internal Revenue Service
form required to be filed in respect of the Trust in each taxable year of the
Trust; and (b) prepare and furnish (or cause to be prepared and furnished) to
each Securityholder the appropriate Internal Revenue Service form required to be
furnished to such Securityholder or the information required to be provided on
such form. The Administrative Trustees shall provide the Depositor with a copy
of all such returns and reports promptly after such filing or furnishing. The
Property Trustee shall comply with United States federal withholding and backup
withholding tax laws and information reporting requirements with respect to any
payments to Securityholders under the Trust Securities.
SECTION 406. PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST.
Upon receipt under the Debentures of Additional Interest, the Property
Trustee, at the direction of an Administrative Trustee or the Depositor, shall
promptly pay any taxes, duties or governmental charges of whatsoever nature
(other than withholding taxes) imposed on the Trust by the United States or any
other taxing authority.
SECTION 407. PAYMENTS UNDER INDENTURE.
Any amount payable hereunder to any Holder of Preferred Securities shall be
reduced by the amount of any corresponding payment such Holder has directly
received under the Indenture pursuant to Section 514(b) or (c) hereof.
ARTICLE V
TRUST SECURITIES CERTIFICATES
SECTION 501. INITIAL OWNERSHIP.
Upon the creation of the Trust and the contribution by the Depositor
pursuant to Section 203 and until the issuance of the Trust Securities, and at
any time during which no Trust Securities are outstanding, the Depositor shall
be the sole beneficial owner of the Trust.
SECTION 502. THE TRUST SECURITIES CERTIFICATES.
The Preferred Securities Certificates shall be issued in minimum
denominations of the Liquidation Amount and integral multiples of the
Liquidation Amount in excess thereof, and the Common Securities Certificates
shall be issued in denominations of the Liquidation Amount and integral
multiples thereof. The Trust Securities Certificates shall be executed on behalf
of the Trust by manual or facsimile signature of at least one Administrative
Trustee. Trust Securities Certificates bearing the manual or facsimile
signatures of individuals who were, at the time when such signatures shall have
been affixed, authorized to sign on behalf of the Trust, shall be validly issued
and entitled to the benefits of this Trust Agreement, notwithstanding that such
individuals or any of them shall have ceased to be so authorized prior to the
delivery of such Trust Securities Certificates or did not hold such offices at
the date of delivery of such Trust Securities Certificates. A transferee of a
Trust Securities Certificate shall become a Securityholder, and shall be
entitled to the rights and subject to the obligations of a Securityholder
hereunder, upon due registration of such Trust Securities Certificate in such
transferee's name pursuant to Sections 504 and 511.
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SECTION 503. EXECUTION, AUTHENTICATION AND DELIVERY OF TRUST SECURITIES
CERTIFICATES.
(a) On the Closing Date and on the Option Closing Date, the Administrative
Trustees shall cause Trust Securities Certificates, in an aggregate Liquidation
Amount as provided in Sections 204 and 205, to be executed on behalf of the
Trust by at least one of the Administrative Trustees and delivered to or upon
the written order of the Depositor, signed by its Chief Executive Officer,
President, any Vice President, the Treasurer or any Assistant Treasurer without
further corporate action by the Depositor, in authorized denominations.
(b) A Preferred Securities Certificate shall not be valid until
authenticated by the manual signature of an authorized signatory of the Property
Trustee. The signature shall be conclusive evidence that the Preferred
Securities Certificate has been authenticated under this Trust Agreement. Each
Preferred Securities Certificate shall be dated the date of its authentication.
(c) Upon the written order of the Trust signed by the Administrative
Trustee, the Property Trustee shall authenticate and make available for delivery
the Preferred Securities Certificates.
(d) The Property Trustee may appoint an Authenticating Agent acceptable to
the Trust to authenticate the Preferred Securities. An Authenticating Agent may
authenticate the Preferred Securities whenever the Property Trustee may do so.
Each reference in this Trust Agreement to authentication by the Property Trustee
includes authentication by such agent. An Authenticating Agent has the same
rights as the Property Trustee to deal with the Depositor or the Trust.
SECTION 504. REGISTRATION OF TRANSFER AND EXCHANGE OF PREFERRED SECURITIES
CERTIFICATES.
(a) The Depositor shall keep or cause to be kept, at the office or agency
maintained pursuant to Section 508, a register or registers for the purpose of
registering Trust Securities Certificates and transfers and exchanges of
Preferred Securities Certificates (herein referred to as the "Securities
Register") in which the registrar designated by the Depositor (the "Securities
Registrar"), subject to such reasonable regulations as it may prescribe, shall
provide for the registration of Preferred Securities Certificates and Common
Securities Certificates (subject to Section 510 in the case of the Common
Securities Certificates) and registration of transfers and exchanges of
Preferred Securities Certificates as herein provided. The Property Trustee shall
be the initial Securities Registrar.
(b) Upon surrender for registration of transfer of any Preferred Securities
Certificate at the office or agency maintained pursuant to Section 508, the
Administrative Trustees or any one of them shall execute and deliver, in the
name of the designated transferee or transferees, one or more new Preferred
Securities Certificates in authorized denominations of a like aggregate
Liquidation Amount dated the date of execution by such Administrative Trustee or
Trustees. The Securities Registrar shall not be required to register the
transfer of any Preferred Securities that have been called for redemption. At
the option of a Holder, Preferred Securities Certificates may be exchanged for
other Preferred Securities Certificates in authorized denominations of the same
class and of a like aggregate Liquidation Amount upon surrender of the Preferred
Securities Certificates to be exchanged at the office or agency maintained
pursuant to Section 508.
(c) Every Preferred Securities Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Property Trustee and the
Securities Registrar duly executed by the Holder or his attorney duly authorized
in writing. Each Preferred Securities Certificate surrendered for registration
of transfer or exchange shall be canceled and subsequently disposed of by the
Property Trustee in accordance with its customary practice. The Trust shall not
be required to (i) issue, register the transfer of, or exchange any Preferred
Securities during a period beginning at the opening of business 15 calendar days
before the date of mailing of a notice of redemption of any Preferred Securities
called for redemption and ending at the close of business on the day of such
mailing; or (ii) register the transfer of or exchange any Preferred Securities
so selected for
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redemption, in whole or in part, except the unredeemed portion of any such
Preferred Securities being redeemed in part.
(d) No service charge shall be made for any registration of transfer or
exchange of Preferred Securities Certificates, but the Securities Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Preferred
Securities Certificates.
SECTION 505. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES CERTIFICATES.
If (a) any mutilated Trust Securities Certificate shall be surrendered to
the Securities Registrar, or if the Securities Registrar shall receive evidence
to its satisfaction of the destruction, loss or theft of any Trust Securities
Certificate; and (b) there shall be delivered to the Securities Registrar, the
Property Trustee and the Administrative Trustees such security or indemnity as
may be required by them to save each of them harmless, then in the absence of
notice that such Trust Securities Certificate shall have been acquired by a bona
fide purchaser, the Administrative Trustees, or any one of them, on behalf of
the Trust shall execute and make available for delivery, in exchange for or in
lieu of any such mutilated, destroyed, lost or stolen Trust Securities
Certificate, a new Trust Securities Certificate of like class, tenor and
denomination. In connection with the issuance of any new Trust Securities
Certificate under this Section 505, the Administrative Trustees or the
Securities Registrar may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
Any duplicate Trust Securities Certificate issued pursuant to this Section 505
shall constitute conclusive evidence of an undivided beneficial interest in the
assets of the Trust, as if originally issued, whether or not the lost, stolen or
destroyed Trust Securities Certificate shall be found at any time.
SECTION 506. PERSONS DEEMED SECURITYHOLDERS.
The Trustees, the Paying Agent and the Securities Registrar shall treat the
Person in whose name any Trust Securities Certificate shall be registered in the
Securities Register as the owner of such Trust Securities Certificate for the
purpose of receiving Distributions and for all other purposes whatsoever, and
neither the Trustees nor the Securities Registrar shall be bound by any notice
to the contrary.
SECTION 507. ACCESS TO LIST OF SECURITYHOLDERS' NAMES AND ADDRESSES.
At any time when the Property Trustee is not also acting as the Securities
Registrar, the Administrative Trustees or the Depositor shall furnish or cause
to be furnished to the Property Trustee (a) semi-annually on or before January
15 and July 15 in each year, a list, in such form as the Property Trustee may
reasonably require, of the names and addresses of the Securityholders as of the
most recent record date; and (b) promptly after receipt by any Administrative
Trustee or the Depositor of a request therefor from the Property Trustee in
order to enable the Property Trustee to discharge its obligations under this
Trust Agreement, in each case to the extent such information is in the
possession or control of the Administrative Trustees or the Depositor and is not
identical to a previously supplied list or has not otherwise been received by
the Property Trustee in its capacity as Securities Registrar. The rights of
Securityholders to communicate with other Securityholders with respect to their
rights under this Trust Agreement or under the Trust Securities, and the
corresponding rights of the Trustee shall be as provided in the Trust Indenture
Act. Each Holder, by receiving and holding a Trust Securities Certificate, and
each owner shall be deemed to have agreed not to hold the Depositor, the
Property Trustee or the Administrative Trustees accountable by reason of the
disclosure of its name and address, regardless of the source from which such
information was derived.
SECTION 508. MAINTENANCE OF OFFICE OR AGENCY.
The Administrative Trustees shall maintain in a location or locations
designated by the Administrative Trustees, an office or offices or agency or
agencies where Preferred Securities Certificates may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Trustees in respect of the Trust Securities Certificates may be served. The
Administrative Trustees initially designate the Corporate Trust Office of the
Property
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Trustee, Two International Place, 4th Floor, Boston, Massachusetts 02110, as the
principal corporate trust office for such purposes. The Administrative Trustees
shall give prompt written notice to the Depositor and to the Securityholders of
any change in the location of the Securities Register or any such office or
agency.
SECTION 509. APPOINTMENT OF PAYING AGENT.
The Paying Agent shall initially be the Property Trustee, and any co-paying
agent chosen by the Property Trustee must be acceptable to the Administrative
Trustees and the Depositor. The Paying Agent shall make Distributions to
Securityholders from the Payment Account and shall report the amounts of such
Distributions to the Property Trustee and the Administrative Trustees. Any
Paying Agent shall have the revocable power to withdraw funds from the Payment
Account for the purpose of making the Distributions referred to above. The
Administrative Trustees may revoke such power and remove the Paying Agent if
such Trustees determine in their sole discretion that the Paying Agent shall
have failed to perform its obligations under this Trust Agreement in any
material respect. Any Person acting as Paying Agent shall be permitted to resign
as Paying Agent upon 30 days' written notice to the Administrative Trustees, the
Property Trustee and the Depositor. In the event that the Property Trustee shall
no longer be the Paying Agent or a successor Paying Agent shall resign or its
authority to act be revoked, the Administrative Trustees shall appoint a
successor that is acceptable to the Property Trustee and the Depositor to act as
Paying Agent (which shall be a bank or trust company). The Administrative
Trustees shall cause such successor Paying Agent or any additional Paying Agent
appointed by the Administrative Trustees to execute and deliver to the Trustees
an instrument in which such successor Paying Agent or additional Paying Agent
shall agree with the Trustees that as Paying Agent, such successor Paying Agent
or additional Paying Agent shall hold all sums, if any, held by it for payment
to the Securityholders in trust for the benefit of the Securityholders entitled
thereto until such sums shall be paid to such Securityholders. The Paying Agent
shall return all unclaimed funds to the Property Trustee and, upon removal of a
Paying Agent, such Paying Agent shall also return all funds in its possession to
the Property Trustee. The provisions of Sections 801, 803 and 806 shall apply to
the Property Trustee also in its role as Paying Agent, for so long as the
Property Trustee shall act as Paying Agent and, to the extent applicable, to any
other Paying Agent appointed hereunder. Any reference in this Trust Agreement to
the Paying Agent shall include any co-paying agent unless the context requires
otherwise.
SECTION 510. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR.
On the Closing Date, the Depositor shall acquire and retain beneficial and
record ownership of the Common Securities. To the fullest extent permitted by
law, any attempted transfer of the Common Securities (other than a transfer in
connection with a merger or consolidation of the Depositor into another
corporation pursuant to Section 12.1 of the Indenture) shall be void. The
Administrative Trustees shall cause each Common Securities Certificate issued to
the Depositor to contain a legend stating "THIS CERTIFICATE IS NOT
TRANSFERABLE".
SECTION 511. PREFERRED SECURITIES CERTIFICATES.
(a) Each owner shall receive a Preferred Securities Certificate representing
such owner's interest in such Preferred Securities. Upon the issuance of
Preferred Securities Certificates, the Trustees shall recognize the record
holders of the Preferred Securities Certificates as Securityholders. The
Preferred Securities Certificates shall be printed, lithographed or engraved or
may be produced in any other manner as is reasonably acceptable to the
Administrative Trustees, as evidenced by the execution thereof by the
Administrative Trustees or any one of them.
(b) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities Certificate.
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SECTION 512. [INTENTIONALLY OMITTED]
SECTION 513. [INTENTIONALLY OMITTED]
SECTION 514. RIGHTS OF SECURITYHOLDERS.
(a) The legal title to the Trust Property is vested exclusively in the
Property Trustee (in its capacity as such) in accordance with Section 209, and
the Securityholders shall not have any right or title therein other than the
undivided beneficial interest in the assets of the Trust conferred by their
Trust Securities and they shall have no right to call for any partition or
division of property, profits or rights of the Trust except as described below.
The Trust Securities shall be personal property giving only the rights
specifically set forth therein and in this Trust Agreement. The Trust Securities
shall have no preemptive or similar rights. When issued and delivered to Holders
of the Preferred Securities against payment of the purchase price therefor, the
Preferred Securities shall be fully paid and nonassessable interests in the
Trust. The Holders of the Preferred Securities, in their capacities as such,
shall be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware.
(b) For so long as any Preferred Securities remain Outstanding, upon a
Debenture Event of Default, the Debenture Trustee fails or the holders of not
less than 25% in principal amount of the outstanding Debentures fail to declare
the principal of all of the Debentures to be immediately due and payable, the
Holders of at least 25% in Liquidation Amount of the Preferred Securities then
Outstanding shall have such right by a notice in writing to the Depositor and
the Debenture Trustee; and upon any such declaration such principal amount of
and the accrued interest on all of the Debentures shall become immediately due
and payable, provided that the payment of principal and interest on such
Debentures shall remain subordinated to the extent provided in the Indenture.
(c) For so long as any Preferred Securities remain Outstanding, upon a
Debenture Event of Default arising from the failure to pay interest or principal
on the Debentures, the Holders of any Preferred Securities then Outstanding
shall, to the fullest extent permitted by law, have the right to directly
institute proceedings for enforcement of payment to such Holders of principal of
or interest on the Debentures having a principal amount equal to the Liquidation
Amount of the Preferred Securities of such Holders.
ARTICLE VI
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
SECTION 601. LIMITATIONS ON VOTING RIGHTS.
(a) Except as provided in this Section 601, in Sections 514, 810 and 1002
and in the Indenture and as otherwise required by law, no Holder of Preferred
Securities shall have any right to vote or in any manner otherwise control the
administration, operation and management of the Trust or the obligations of the
parties hereto, nor shall anything herein set forth, or contained in the terms
of the Trust Securities Certificates, be construed so as to constitute the
Securityholders from time to time as partners or members of an association.
(b) So long as any Debentures are held by the Property Trustee, the Trustees
shall not (i) direct the time, method and place of conducting any proceeding for
any remedy available to the Debenture Trustee, or executing any trust or power
conferred on the Debenture Trustee with respect to such Debentures; (ii) waive
any past default which is waivable under Article VII of the Indenture; (iii)
exercise any right to rescind or annul a declaration that the principal of all
the Debentures shall be due and payable; or (iv) consent to any amendment,
modification or termination of the Indenture or the Debentures, where such
consent shall be required, without, in each case, obtaining the prior approval
of the Holders of at least a majority in Liquidation Amount of all Outstanding
Preferred Securities; provided, however, that where a consent under the
Indenture would require the consent of each holder of outstanding Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior written consent of each Holder of Preferred Securities. The Trustees
shall not revoke any action previously authorized or approved by a vote of the
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Holders of the Outstanding Preferred Securities, except when authorized by a
subsequent vote of the Holders of the Outstanding Preferred Securities. The
Property Trustee shall notify each Holder of the Outstanding Preferred
Securities of any notice of default received from the Debenture Trustee with
respect to the Debentures. In addition to obtaining the foregoing approvals of
the Holders of the Preferred Securities, prior to taking any of the foregoing
actions, the Trustees shall, at the expense of the Depositor, obtain an Opinion
of Counsel experienced in such matters to the effect that the Trust shall
continue to be classified as a grantor trust and not as an association taxable
as a corporation for United States federal income tax purposes on account of
such action.
(c) If any proposed amendment to the Trust Agreement provides for, or the
Trustees otherwise propose to effect, (i) any action that would adversely affect
in any material respect the powers, preferences or special rights of the
Preferred Securities, whether by way of amendment to the Trust Agreement or
otherwise; or (ii) the dissolution, winding-up or termination of the Trust,
other than pursuant to the terms of this Trust Agreement, then the Holders of
Outstanding Preferred Securities as a class shall be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of the Holders of at least a majority in Liquidation
Amount of the Outstanding Preferred Securities. No amendment to this Trust
Agreement may be made if, as a result of such amendment, the Trust would cease
to be classified as a grantor trust or would be classified as an association
taxable as a corporation for United States federal income tax purposes.
SECTION 602. NOTICE OF MEETINGS.
Notice of all meetings of the Preferred Securityholders, stating the time,
place and purpose of the meeting, shall be given by the Property Trustee
pursuant to Section 1008 to each Preferred Securityholder of record, at his
registered address, at least 15 days and not more than 90 days before the
meeting. At any such meeting, any business properly before the meeting may be so
considered whether or not stated in the notice of the meeting. Any adjourned
meeting may be held as adjourned without further notice.
SECTION 603. MEETINGS OF PREFERRED SECURITYHOLDERS.
(a) No annual meeting of Securityholders is required to be held. The
Administrative Trustees, however, shall call a meeting of Securityholders to
vote on any matter in respect of which Preferred Securityholders are entitled to
vote upon the written request of the Preferred Securityholders of 25% of the
Outstanding Preferred Securities (based upon their aggregate Liquidation Amount)
and the Administrative Trustees or the Property Trustee may, at any time in
their discretion, call a meeting of Preferred Securityholders to vote on any
matters as to which the Preferred Securityholders are entitled to vote.
(b) Preferred Securityholders of record of 50% of the Outstanding Preferred
Securities (based upon their aggregate Liquidation Amount), present in person or
by proxy, shall constitute a quorum at any meeting of Securityholders.
(c) If a quorum is present at a meeting, an affirmative vote by the
Preferred Securityholders of record present, in person or by proxy, holding more
than a majority of the Preferred Securities (based upon their aggregate
Liquidation Amount) held by the Preferred Securityholders of record present,
either in person or by proxy, at such meeting shall constitute the action of the
Securityholders, unless this Trust Agreement requires a greater number of
affirmative votes.
SECTION 604. VOTING RIGHTS.
Securityholders shall be entitled to one vote for each dollar value of
Liquidation Amount represented by their Trust Securities in respect of any
matter as to which such Securityholders are entitled to vote (and such dollar
value shall be $10 per Preferred Security until such time, if any, as the
Liquidation Amount is changed as provided herein).
SECTION 605. PROXIES, ETC.
At any meeting of Securityholders, any Securityholder entitled to vote
thereat may vote by proxy, provided that no
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proxy, shall be voted at any meeting unless it shall have been placed on file
with the Administrative Trustees, or with such other officer or agent of the
Trust as the Administrative Trustees may direct, for verification prior to the
time at which such vote shall be taken. When Trust Securities are held jointly
by several persons, any one of them may vote at any meeting in person or by
proxy in respect of such Trust Securities, but if more than one of them shall be
present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Trust Securities. A proxy purporting to be executed
by or on behalf of a Securityholder shall be deemed valid unless challenged at
or prior to its exercise, and, the burden of proving invalidity shall rest on
the challenger. No proxy shall be valid more than three years after its date of
execution.
SECTION 606. SECURITYHOLDER ACTION BY WRITTEN CONSENT.
Any action which may be taken by Securityholders at a meeting may be taken
without a meeting if Securityholders holding more than a majority of all
Outstanding Trust Securities (based upon their aggregate Liquidation Amount)
entitled to vote in respect of such action (or such larger proportion thereof as
shall be required by any express provision of this Trust Agreement) shall
consent to the action in writing.
SECTION 607. RECORD DATE FOR VOTING AND OTHER PURPOSES.
For the purposes of determining the Securityholders who are entitled to
notice of and to vote at any meeting or by written consent, or to participate in
any Distribution on the Trust Securities in respect of which a record date is
not otherwise provided for in this Trust Agreement, or for the purpose of any
other action, the Administrative Trustees may from time to time fix a date, not
more than 90 days prior to the date of any meeting of Securityholders or the
payment of Distribution or other action, as the case may be, as a record date
for the determination of the identity of the Securityholders of record for such
purposes.
SECTION 608. ACTS OF SECURITYHOLDERS.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided or permitted by this Trust Agreement to be given, made
or taken by Securityholders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Securityholders in
person or by an agent duly appointed in writing; and, except as otherwise
expressly provided herein, such action shall become effective when such
instrument or instruments are delivered to an Administrative Trustee. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Securityholders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Trust Agreement and (subject to Section 801) conclusive in favor
of the Trustees, if made in the manner provided in this Section 608.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which any Trustee receiving the same deems sufficient.
(c) The ownership of Preferred Securities shall be proved by the Securities
Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Securityholder of any Trust Security shall bind every future
Securityholder of the same Trust Security and the Securityholder of every Trust
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustees or the Trust in reliance thereon, whether or not
notation of such action is made upon such Trust Security.
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(e) Without limiting the foregoing, a Securityholder entitled hereunder to
take any action hereunder with regard to any particular Trust Security may do so
with regard to all or any part of the Liquidation Amount of such Trust Security
or by one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any part of such Liquidation Amount.
(f) A Securityholder may institute a legal proceeding directly against the
Depositor under the Guarantee to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee (as defined
in the Guarantee), the Trust or any Person.
SECTION 609. INSPECTION OF RECORDS.
Upon reasonable notice to the Administrative Trustees and the Property
Trustee, the records of the Trust shall be open to inspection and copying by
Securityholders and their authorized representatives during normal business
hours for any purpose reasonably related to such Securityholder's interest as a
Securityholder.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 701. REPRESENTATIONS AND WARRANTIES OF THE BANK AND THE PROPERTY
TRUSTEE.
The Bank and the Property Trustee, each severally on behalf of and as to
itself, as of the date hereof, and each successor Property Trustee at the time
of the successor Property Trustee's acceptance of its appointment as Property
Trustee hereunder (the term "Bank" being used to refer to such successor
Property Trustee in its separate corporate capacity) hereby represents and
warrants (as applicable) for the benefit of the Depositor and the
Securityholders that:
(a) the Bank is a trust company duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts;
(b) the Bank has full corporate power, authority and legal right to execute,
deliver and perform its obligations under this Trust Agreement and has taken all
necessary action to authorize the execution, delivery and performance by it of
this Trust Agreement;
(c) this Trust Agreement has been duly authorized, executed and delivered by
the Property Trustee and constitutes the valid and legally binding agreement of
the Property Trustee enforceable against it in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors, rights and to general equity principles;
(d) the execution, delivery and performance by the Property Trustee of this
Trust Agreement has been duly authorized by all necessary corporate or other
action on the part of the Property Trustee and does not require any approval of
stockholders of the Bank and such execution, delivery and performance shall not
(i) violate the Bank's charter or by-laws; (ii) violate any provision of, or
constitute, with or without notice or lapse of time, a default under, or result
in the creation or imposition of, any Lien on any properties included in the
Trust Property pursuant to the provisions of, any indenture, mortgage, credit
agreement, license or other agreement or instrument to which the Property
Trustee or the Bank is a party or by which it is bound; or (iii) violate any
law, governmental rule or regulation of the United States or the Commonwealth of
Massachusetts, as the case may be, governing the banking or trust powers of the
Bank or the Property Trustee (as appropriate in context) or any order, judgment
or decree applicable to the Property Trustee or the Bank;
(e) neither the authorization, execution or delivery by the Property Trustee
of this Trust Agreement nor the consummation of any of the transactions by the
Property Trustee contemplated herein or therein requires the consent
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or approval of, the giving of notice to, the registration with or the taking of
any other action with respect to any governmental authority or agency under any
existing federal law governing the banking or trust powers of the Bank or the
Property Trustee, as the case may be, under the laws of the United States or the
Commonwealth of Massachusetts; and
(f) there are no proceedings pending or, to the best of the Property
Trustee's knowledge, threatened against or affecting the Bank or the Property
Trustee in any court or before any governmental authority, agency or arbitration
board or tribunal which, individually or in the aggregate, would materially and
adversely affect the Trust or would question the right, power and authority of
the Property Trustee to enter into or perform its obligations as one of the
Trustees under this Trust Agreement.
SECTION 702. REPRESENTATIONS AND WARRANTIES OF THE DELAWARE BANK AND THE
DELAWARE TRUSTEE.
The Delaware Bank and the Delaware Trustee, each severally on behalf of and
as to itself, as of the date hereof, and each successor Delaware Trustee at the
time of the successor Delaware Trustee's acceptance of appointment as Delaware
Trustee hereunder (the term "Delaware Bank" being used to refer to such
successor Delaware Trustee in its separate corporate capacity), hereby
represents and warrants (as applicable) for the benefit of the Depositor and the
Securityholders that:
(a) the Delaware Bank is a Delaware banking corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware;
(b) the Delaware Bank has full corporate power, authority and legal right to
execute, deliver and perform its obligations under this Trust Agreement and has
taken all necessary action to authorize the execution, delivery and performance
by it of this Trust Agreement;
(c) this Trust Agreement has been duly authorized, executed and delivered by
the Delaware Trustee and constitutes the valid and legally binding agreement of
the Delaware Trustee enforceable against it in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors, rights and to general equity principles;
(d) the execution, delivery and performance by the Delaware Trustee of this
Trust Agreement has been duly authorized by all necessary corporate or other
action on the part of the Delaware Trustee and does not require any approval of
stockholders of the Delaware Bank and such execution, delivery and performance
shall not (i) violate the Delaware Bank's charter or by-laws; (ii) violate any
provision of, or constitute, with or without notice or lapse of time, a default
under, or result in the creation or imposition of, any Lien on any properties
included in the Trust Property pursuant to the provisions of, any indenture,
mortgage, credit agreement, license or other agreement or instrument to which
the Delaware Bank or the Delaware Trustee is a party or by which it is bound; or
(iii) violate any law, governmental rule or regulation of the United States or
the State of Delaware, as the case may be, governing the banking or trust powers
of the Delaware Bank or the Delaware Trustee (as appropriate in context) or any
order, judgment or decree applicable to the Delaware Bank or the Delaware
Trustee;
(e) neither the authorization, execution or delivery by the Delaware Trustee
of this Trust Agreement nor the consummation of any of the transactions by the
Delaware Trustee contemplated herein or therein requires the consent or approval
of, the giving of notice to, the registration with or the taking of any other
action with respect to any governmental authority or agency under any existing
federal law governing the banking or trust powers of the Delaware Bank or the
Delaware Trustee, as the case may be, under the laws of the United States or the
State of Delaware; and
(f) there are no proceedings pending or, to the best of the Delaware
Trustee's knowledge, threatened against or affecting the Delaware Bank or the
Delaware Trustee in any court or before any governmental authority, agency or
arbitration board or tribunal which, individually or in the aggregate, would
materially and adversely affect the Trust
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or would question the right, power and authority of the Delaware Trustee to
enter into or perform its obligations as one of the Trustees under this Trust
Agreement.
SECTION 703. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR.
The Depositor hereby represents and warrants for the benefit of the
Securityholders that:
(a) the Trust Securities Certificates issued on the Closing Date or the
Option Closing Date, if applicable, on behalf of the Trust have been duly
authorized and, shall be, as of such date or dates, if applicable, duly and
validly executed, issued and delivered by the Administrative Trustees pursuant
to the terms and provisions of, and in accordance with the requirements of, this
Trust Agreement and the Securityholders shall be, as of such date or dates, if
applicable, entitled to the benefits of this Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by the
Trust (or the Trustees on behalf of the Trust) under the laws of the State of
Delaware or any political subdivision thereof in connection with the execution,
delivery and performance by the Bank, the Property Trustee or the Delaware
Trustee, as the case may be, of this Trust Agreement.
ARTICLE VIII
TRUSTEES
SECTION 801. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The duties and responsibilities of the Trustees shall be as provided by
this Trust Agreement and, in the case of the Property Trustee, by the Trust
Indenture Act. Notwithstanding the foregoing, no provision of this Trust
Agreement shall require the Trustees to expend or risk their own funds or
otherwise incur any financial liability in the performance of any of their
duties hereunder, or in the exercise of any of their rights or powers, if they
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
them. No Administrative Trustee nor the Delaware Trustee shall be liable for its
act or omissions hereunder except as a result of its own gross negligence or
willful misconduct. The Property Trustee's liability shall be determined under
the Trust Indenture Act. Whether or not therein expressly so provided, every
provision of this Trust Agreement relating to the conduct or affecting the
liability of or affording protection to the Trustees shall be subject to the
provisions of this Section 801. To the extent that, at law or in equity, the
Delaware Trustee or an Administrative Trustee has duties (including fiduciary
duties) and liabilities relating thereto to the Trust or to the Securityholders,
the Delaware Trustee or such Administrative Trustee shall not be liable to the
Trust or to any Securityholder for such Trustee's good faith reliance on the
provisions of this Trust Agreement. The provisions of this Trust Agreement, to
the extent that they restrict the duties and liabilities of the Delaware Trustee
or the Administrative Trustees otherwise existing at law or in equity, are
agreed by the Depositor and the Securityholders to replace such other duties and
liabilities of the Delaware Trustee and the Administrative Trustees, as the case
may be.
(b) All payments made by the Property Trustee or a Paying Agent in respect
of the Trust Securities shall be made only from the revenue and proceeds from
the Trust Property and only to the extent that there shall be sufficient revenue
or proceeds from the Trust Property to enable the Property Trustee or a Paying
Agent to make payments in accordance with the terms hereof. With respect to the
relationship of each Securityholder and the Trustee, each Securityholder, by its
acceptance of a Trust Security, agrees that it shall look solely to the revenue
and proceeds from the Trust Property to the extent legally available for
distribution to it as herein provided and that the Trustees are not personally
liable to it for any amount distributable in respect of any Trust Security or
for any other liability in respect of any Trust Security. This Section 801(b)
does not limit the liability of the Trustees expressly set forth elsewhere in
this Trust Agreement or, in the case of the Property Trustee, in the Trust
Indenture Act.
(c) No provision of this Trust Agreement shall be construed to relieve the
Property Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
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(i) the Property Trustee shall not be liable for any error of judgment
made in good faith by an authorized officer of the Property Trustee, unless
it shall be proved that the Property Trustee was negligent in ascertaining
the pertinent facts;
(ii) the Property Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of not less than a majority in Liquidation Amount
of the Trust Securities relating to the time, method and place of conducting
any proceeding for any remedy available to the Property Trustee, or
exercising any trust or power conferred upon the Property Trustee under this
Trust Agreement;
(iii) the Property Trustee's sole duty with respect to the custody, safe
keeping and physical preservation of the Debentures and the Payment Account
shall be to deal with such property in a similar manner as the Property
Trustee deals with similar property for its own account, subject to the
protections and limitations on liability afforded to the Property Trustee
under this Trust Agreement and the Trust Indenture Act;
(iv) the Property Trustee shall not be liable for any interest on any
money received by it except as it may otherwise agree with the Depositor and
money held by the Property Trustee need not be segregated from other funds
held by it except in relation to the Payment Account maintained by the
Property Trustee pursuant to Section 301 and except to the extent otherwise
required by law; and
(v) the Property Trustee shall not be responsible for monitoring the
compliance by the Administrative Trustees or the Depositor with their
respective duties under this Trust Agreement, nor shall the Property Trustee
be liable for the negligence, default or misconduct of the Administrative
Trustees or the Depositor.
SECTION 802. CERTAIN NOTICES.
(a) Within 5 Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit, in
the manner and to the extent provided in Section 1008, notice of such Event of
Default to the Securityholders, the Administrative Trustees and the Depositor,
unless such Event of Default shall have been cured or waived. For purposes of
this Section 802 the term "Event of Default" means any event that is, or after
notice or lapse of time or both would become, an Event of Default.
(b) The Administrative Trustees shall transmit, to the Securityholders in
the manner and to the extent provided in Section 1008, notice of the Depositor's
election to begin or further extend an Extension Period on the Debentures
(unless such election shall have been revoked), and of any election by the
Depositor to accelerate the Maturity Date of the Debentures within the time
specified for transmitting such notice to the holders of the Debentures pursuant
to the Indenture as originally executed.
SECTION 803. CERTAIN RIGHTS OF PROPERTY TRUSTEE.
Subject to the provisions of Section 801:
(a) the Property Trustee may rely and shall be protected in acting or
refraining from acting in good faith upon any resolution, Opinion of Counsel,
certificate, written representation of a Holder or transferee, certificate of
auditors or any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) if (i) in performing its duties under this Trust Agreement the Property
Trustee is required to decide between alternative courses of action; or (ii) in
construing any of the provisions of this Trust Agreement the Property Trustee
finds the same ambiguous or inconsistent with other provisions contained herein;
or (iii) the Property Trustee is unsure of the application of any provision of
this Trust Agreement, then, except as to any matter as to which the Preferred
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Securityholders are entitled to vote under the terms of this Trust Agreement,
the Property Trustee shall deliver a notice to the Depositor requesting written
instructions of the Depositor as to the course of action to be taken and the
Property Trustee shall take such action, or refrain from taking such action, as
the Property Trustee shall be instructed in writing to take, or to refrain from
taking, by the Depositor; provided, however, that if the Property Trustee does
not receive such instructions of the Depositor within 10 Business Days after it
has delivered such notice, or such reasonably shorter period of time set forth
in such notice (which to the extent practicable shall not be less than 2
Business Days), it may, but shall be under no duty to, take or refrain from
taking such action not inconsistent with this Trust Agreement as it shall deem
advisable and in the best interests of the Securityholders, in which event the
Property Trustee shall have no liability except for its own bad faith,
negligence or willful misconduct;
(c) any direction or act of the Depositor or the Administrative Trustees
contemplated by this Trust Agreement shall be sufficiently evidenced by an
Officers' Certificate;
(d) whenever in the administration of this Trust Agreement, the Property
Trustee shall deem it desirable that a matter be established before undertaking,
suffering or omitting any action hereunder, the Property Trustee (unless other
evidence is herein specifically prescribed) may, in the absence of bad faith on
its part, request and conclusively rely upon an Officer's Certificate which,
upon receipt of such request, shall be promptly delivered by the Depositor or
the Administrative Trustees;
(e) the Property Trustee shall have no duty to see to any recording, filing
or registration of any instrument (including any financing or continuation
statement, any filing under tax or securities laws or any filing under tax or
securities laws) or any rerecording, refiling or reregistration thereof;
(f) the Property Trustee may consult with counsel of its choice (which
counsel may be counsel to the Depositor or any of its Affiliates) and the advice
of such counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon and, in accordance with such advice, such counsel may be
counsel to the Depositor or any of its Affiliates, and may include any of its
employees; the Property Trustee shall have the right at any time to seek
instructions concerning the administration of this Trust Agreement from any
court of competent jurisdiction;
(g) the Property Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Trust Agreement at the request, order or
direction of any of the Securityholders pursuant to this Trust Agreement, unless
such Securityholders shall have offered to the Property Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request, order or direction; nothing
contained herein shall, however, relieve the Property Trustee of the obligation,
upon the occurrence of an Event of Default (that has not been cured or waived)
to exercise with respect to the Debentures, such of the rights and powers vested
in it by this Trust Agreement, and to use the same degree of care and skill in
their exercise as a prudent man would exercise or use under the circumstances in
the conduct of his own affairs;
(h) the Property Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other evidence of indebtedness or other paper or document,
unless requested in writing to do so by one or more Securityholders, but the
Property Trustee may make such further inquiry or investigation into such facts
or matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through its agents or
attorneys, provided that the Property Trustee shall be responsible for its own
negligence or recklessness with respect to selection of any agent or attorney
appointed by it hereunder;
(j) whenever in the administration of this Trust Agreement the Property
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder the Property
Trustee (i) may request instructions from the Holders of the Trust Securities
which instructions may only be given by the
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Holders of the same proportion in Liquidation Amount of the Trust Securities as
would be entitled to direct the Property Trustee under the terms of the Trust
Securities in respect of such remedy, right or action; (ii) may refrain from
enforcing such remedy or right or taking such other action until such
instructions are received; and (iii) shall be protected in acting in accordance
with such instructions; and
(k) except as otherwise expressly provided by this Trust Agreement, the
Property Trustee shall not be under any obligation to take any action that is
discretionary under the provisions of this Trust Agreement. No provision of this
Trust Agreement shall be deemed to impose any duty or obligation on the Property
Trustee to perform any act or acts or exercise any right, power, duty or
obligation conferred or imposed on it, in any jurisdiction in which it shall be
illegal, or in which the Property Trustee shall be unqualified or incompetent in
accordance with applicable law, to perform any such act or acts, or to exercise
any such right, power, duty or obligation. No permissive power or authority
available to the Property Trustee shall be construed to be a duty.
SECTION 804. NOT RESPONSIBLE FOR RECITALS OR USE OF PROCEEDS.
The Recitals contained herein and in the Trust Securities Certificates shall
be taken as the statements of the Trust, and the Trustees do not assume any
responsibility for their correctness. The Trustees shall not be accountable for
the use or application by the Depositor of the proceeds of the Debentures.
SECTION 805. MAY HOLD SECURITIES.
Any Trustee or any other agent of any Trustee or the Trust, in its
individual or any other capacity, may become the owner or pledgee of Trust
Securities and, subject to Sections 808 and 813 and except as provided in the
definition of the term "Outstanding" in Article I, may otherwise deal with the
Trust with the same rights it would have if it were not a Trustee or such other
agent.
SECTION 806. COMPENSATION; INDEMNITY; FEES.
The Depositor agrees:
(a) to pay to the Trustees from time to time reasonable compensation for all
services rendered by them hereunder (which compensation shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust);
(b) except as otherwise expressly provided herein, to reimburse the Trustees
upon request for all reasonable expenses, disbursements and advances incurred or
made by the Trustees in accordance with any provision of this Trust Agreement
(including the reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance as may be
attributable to such Trustee's negligence, bad faith or willful misconduct (or,
in the case of the Administrative Trustees or the Delaware Trustee, any such
expense, disbursement or advance as may be attributable to its, his or her gross
negligence, bad faith or willful misconduct); and
(c) to indemnify each of the Trustees or any predecessor Trustee for, and to
hold the Trustees harmless against, any loss, damage, claims, liability, penalty
or expense incurred without negligence or bad faith on its part, arising out of
or in connection with the acceptance or administration of this Trust Agreement,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder, except any such expense, disbursement or advance as may be
attributable to such Trustee's negligence, bad faith or willful misconduct (or,
in the case of the Administrative Trustees or the Delaware Trustee, any such
expense, disbursement or advance as may be attributable to its, his or her gross
negligence, bad faith or willful misconduct).
No Trustee may claim any Lien on any Trust Property as a result of any
amount due pursuant to this Section 806.
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SECTION 807. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF TRUSTEES.
(a) There shall at all times be a Property Trustee hereunder with respect to
the Trust Securities. The Property Trustee shall be a Person that is eligible
pursuant to the Trust Indenture Act to act as such and has a combined capital
and surplus of at least $50,000,000. If any such Person publishes reports of
condition at least annually, pursuant to law or to the requirements of its
supervising or examining authority, then for the purposes of this Section 807,
the combined capital and surplus of such Person shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Property Trustee with respect to the Trust
Securities shall cease to be eligible in accordance with the provisions of this
Section 807, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article VIII.
(b) There shall at all times be one or more Administrative Trustees
hereunder with respect to the Trust Securities. Each Administrative Trustee
shall be either a natural person who is at least 21 years of age or a legal
entity that shall act through one or more persons authorized to bind that
entity.
(c) There shall at all times be a Delaware Trustee with respect to the Trust
Securities. The Delaware Trustee shall either be (i) a natural person who is at
least 21 years of age and a resident of the State of Delaware; or (ii) a legal
entity with its principal place of business in the State of Delaware and that
otherwise meets the requirements of applicable Delaware law that shall act
through one or more persons authorized to bind such entity.
SECTION 808. CONFLICTING INTERESTS.
If the Property Trustee has or shall acquire a conflicting interest within
the meaning of the Trust Indenture Act, the Property Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Trust
Agreement.
SECTION 809. CO-TRUSTEES AND SEPARATE TRUSTEE.
(a) Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the Trust Property may
at the time be located, the Depositor shall have power to appoint, and upon the
written request of the Property Trustee, the Depositor shall for such purpose
join with the Property Trustee in the execution, delivery and performance of all
instruments and agreements necessary or proper to appoint, one or more Persons
approved by the Property Trustee either to act as co-trustee, jointly with the
Property Trustee, of all or any part of such Trust Property, or to the extent
required by law to act as separate trustee of any such property, in either case
with such powers as may be provided in the instrument of appointment, and to
vest in such Person or Persons in the capacity aforesaid, any property, title,
right or power deemed necessary or desirable, subject to the other provisions of
this Section 809. If the Depositor does not join in such appointment within 15
days after the receipt by it of a request so to do, or in case a Debenture Event
of Default has occurred and is continuing, the Property Trustee alone shall have
power to make such appointment. Any co-trustee or separate trustee appointed
pursuant to this Section 809 shall either be (i) a natural person who is at
least 21 years of age and a resident of the United States; or (ii) a legal
entity with its principal place of business in the United States that shall act
through one or more persons authorized to bind such entity.
(b) Should any written instrument from the Depositor be required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such property, title, right, or power, any and
all such instruments shall, on request, be executed, acknowledged, and delivered
by the Depositor.
(c) Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following terms,
namely:
(i) The Trust Securities shall be executed and delivered and all rights,
powers, duties and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or
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pledged with, the Trustees specified hereunder, shall be exercised, solely
by such Trustees and not by such co-trustee or separate trustee.
(ii) The rights, powers, duties and obligations hereby conferred or
imposed upon the Property Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed by
the Property Trustee or by the Property Trustee and such co-trustee or
separate trustee jointly, as shall be provided in the instrument appointing
such co-trustee or separate trustee, except to the extent that under any law
of any jurisdiction in which any particular act is to be performed, the
Property Trustee shall be incompetent or unqualified to perform such act, in
which event such rights, powers, duties and obligations shall be exercised
and performed by such co-trustee or separate trustee.
(iii) The Property Trustee at any time, by an instrument in writing
executed by it, with the written concurrence of the Depositor, may accept
the resignation of or remove any co-trustee or separate trustee appointed
under this Section 809, and, in case a Debenture Event of Default has
occurred and is continuing, the Property Trustee shall have the power to
accept the resignation of, or remove, any such co-trustee or separate
trustee without the concurrence of the Depositor. Upon the written request
of the Property Trustee, the Depositor shall join with the Property Trustee
in the execution, delivery and performance of all instruments and agreements
necessary or proper to effectuate such resignation or removal. A successor
to any co-trustee or separate trustee so resigned or removed may be
appointed in the manner provided in this Section 809.
(iv) No co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Property Trustee or any other
trustee hereunder.
(v) The Property Trustee shall not be liable by reason of any act of a
co-trustee or separate trustee.
(vi) Any Act of Holders delivered to the Property Trustee shall be
deemed to have been delivered to each such co-trustee and separate trustee.
SECTION 810. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) Except as otherwise provided herein, no resignation or removal of any
Trustee (the "Relevant Trustee") and no appointment of a successor Trustee
pursuant to this Article VIII shall become effective until the acceptance of
appointment by the successor Trustee in accordance with the applicable
requirements of Section 811.
(b) Subject to the immediately preceding paragraph, the Relevant Trustee may
resign at any time with respect to the Trust Securities by giving written notice
thereof to the Securityholders. If the instrument of acceptance by the successor
Trustee required by Section 811 shall not have been delivered to the Relevant
Trustee within 30 days after the giving of such notice of resignation, the
Relevant Trustee may petition, at the expense of the Depositor, any court of
competent jurisdiction for the appointment of a successor Relevant Trustee with
respect to the Trust Securities.
(c) Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by Act of the Common
Securityholder. If a Debenture Event of Default shall have occurred and be
continuing, the Property Trustee or the Delaware Trustee, or both of them, may
be removed at such time by Act of the Holders of a majority in Liquidation
Amount of the Preferred Securities, delivered to the Relevant Trustee (in its
individual capacity and on behalf of the Trust). An Administrative Trustee may
be removed by the Common Securityholder at any time.
(d) If any Trustee shall resign, be removed or become incapable of acting as
Trustee, or if a vacancy shall occur in the office of any Trustee for any cause,
at a time when no Debenture Event of Default shall have occurred and be
continuing, the Common Securityholder, by Act of the Common Securityholder
delivered to the retiring Trustee, shall promptly appoint a successor Trustee or
Trustees with respect to the Trust Securities and the Trust, and the successor
Trustee shall comply with the applicable requirements of Section 811. If the
Property Trustee or the Delaware Trustee
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shall resign, be removed or become incapable of continuing to act as the
Property Trustee or the Delaware Trustee, as the case may be, at a time when a
Debenture Event of Default shall have occurred and is continuing, the Preferred
Securityholders, by Act of the Securityholders of a majority in Liquidation
Amount of the Preferred Securities then Outstanding delivered to the retiring
Relevant Trustee, shall promptly appoint a successor Relevant Trustee or
Trustees with respect to the Trust Securities and the Trust, and such successor
Trustee shall comply with the applicable requirements of Section 811. If an
Administrative Trustee shall resign, be removed or become incapable of acting as
Administrative Trustee, at a time when a Debenture Event of Default shall have
occurred and be continuing, the Common Securityholder, by Act of the Common
Securityholder delivered to an Administrative Trustee, shall promptly appoint a
successor Administrative Trustee or Administrative Trustees with respect to the
Trust Securities and the Trust, and such successor Administrative Trustee or
Administrative Trustees shall comply with the applicable requirements of Section
811. If no successor Relevant Trustee with respect to the Trust Securities shall
have been so appointed by the Common Securityholder or the Preferred
Securityholders and accepted appointment in the manner required by Section 811,
any Securityholder who has been a Securityholder of Trust Securities for six
consecutive months on behalf of himself and all others similarly situated may
petition a court of competent jurisdiction for the appointment of a successor
Relevant Trustee with respect to the Trust Securities.
(e) The Property Trustee shall give notice of each resignation and each
removal of a Trustee and each appointment of a successor Trustee to all
Securityholders in the manner provided in Section 1008 and shall give notice to
the Depositor. Each notice shall include the name of the successor Relevant
Trustee and the address of its Corporate Trust Office if it is the Property
Trustee.
(f) Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Administrative Trustee or a Delaware Trustee who is
a natural person dies or becomes, in the opinion of the Depositor, incompetent
or incapacitated, the vacancy created by such death, incompetence or incapacity
may be filled by (a) the unanimous act of remaining Administrative Trustees if
there are at least two of them; or (b) otherwise by the Depositor (with the
successor in each case being a Person who satisfies the eligibility requirement
for Administrative Trustees set forth in Section 807).
SECTION 811. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor Relevant Trustee
with respect to the Trust Securities and the Trust, the retiring Relevant
Trustee and each successor Relevant Trustee with respect to the Trust Securities
shall execute and deliver an instrument hereto wherein each successor Relevant
Trustee shall accept such appointment and which shall contain such provisions as
shall be necessary or desirable to transfer and confirm to, and to vest in, each
successor Relevant Trustee all the rights, powers, trusts and duties of the
retiring Relevant Trustee with respect to the Trust Securities and the Trust and
upon the execution and delivery of such instrument the resignation or removal of
the retiring Relevant Trustee shall become effective to the extent provided
therein and each such successor Relevant Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Relevant Trustee with respect to the Trust Securities and
the Trust; but, on request of the Trust or any successor Relevant Trustee such
retiring Relevant Trustee shall duly assign, transfer and deliver to such
successor Relevant Trustee all Trust Property, all proceeds thereof and money
held by such retiring Relevant Trustee hereunder with respect to the Trust
Securities and the Trust.
(b) Upon request of any such successor Relevant Trustee, the Trust shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Relevant Trustee all such rights, powers and trusts
referred to in the immediately preceding paragraph, as the case may be.
(c) No successor Relevant Trustee shall accept its appointment unless at the
time of such acceptance such successor Relevant Trustee shall be qualified and
eligible under this Article VIII.
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SECTION 812. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any Person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which such Relevant Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of such Relevant Trustee, shall be the successor of such Relevant Trustee
hereunder, provided such Person shall be otherwise qualified and eligible under
this Article VIII, without the execution or filing of any paper or any further
act on the part of any of the parties hereto.
SECTION 813. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR TRUST.
If and when the Property Trustee or the Delaware Trustee shall be or become
a creditor of the Depositor or the Trust (or any other obligor upon the
Debentures or the Trust Securities), the Property Trustee or the Delaware
Trustee, as the case may be, shall be subject to and shall take all actions
necessary in order to comply with the provisions of the Trust Indenture Act
regarding the collection of claims against the Depositor or Trust (or any such
other obligor).
SECTION 814. REPORTS BY PROPERTY TRUSTEE.
(a) The Property Trustee shall transmit to Securityholders such reports
concerning the Property Trustee, its actions under this Trust Agreement and the
property and funds in its possession as Property Trustee as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant thereto.
(b) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Property Trustee with the Nasdaq
National Market, and each national securities exchange or other organization
upon which the Trust Securities are listed, and also with the Commission and the
Depositor.
SECTION 815. REPORTS TO THE PROPERTY TRUSTEE.
The Depositor and the Administrative Trustees on behalf of the Trust shall
provide to the Property Trustee such documents, reports and information as
required by Section 314 of the Trust Indenture Act (if any) and the compliance
certificate required by Section 314(a) of the Trust Indenture Act in the form,
in the manner and at the times required by Section 314 of the Trust Indenture
Act.
SECTION 816. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
Each of the Depositor and the Administrative Trustees on behalf of the Trust
shall provide to the Property Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Trust Agreement that relate
to any of the matters set forth in Section 314(c) of the Trust Indenture Act.
Any certificate or opinion required to be given by an officer pursuant to
Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an
Officers' Certificate.
SECTION 817. NUMBER OF TRUSTEES.
(a) The number of Trustees shall be five, provided that the Holder of all of
the Common Securities by written instrument may increase or decrease the number
of Administrative Trustees. The Property Trustee and the Delaware Trustee may be
the same Person.
(b) If a Trustee ceases to hold office for any reason and the number of
Administrative Trustees is not reduced pursuant to Section 817(a), or if the
number of Trustees is increased pursuant to Section 817(a), a vacancy shall
occur. The vacancy shall be filled with a Trustee appointed in accordance with
Section 810.
(c) The death, resignation, retirement, removal, bankruptcy, incompetence or
incapacity to perform the duties of
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a Trustee shall not operate to annul the Trust. Whenever a vacancy in the number
of Administrative Trustees shall occur, until such vacancy is filled by the
appointment of an Administrative Trustee in accordance with Section 810, the
Administrative Trustees in office, regardless of their number (and
notwithstanding any other provision of this Agreement), shall have all the
powers granted to the Administrative Trustees and shall discharge all the duties
imposed upon the Administrative Trustees by this Trust Agreement.
SECTION 818. DELEGATION OF POWER.
(a) Any Administrative Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purpose of executing any documents contemplated in Section
207(a); and
(b) The Administrative Trustees shall have power to delegate from time to
time to such of their number or to the Depositor the doing of such things and
the execution of such instruments either in the name of the Trust or the names
of the Administrative Trustees or otherwise as the Administrative Trustees may
deem expedient, to the extent such delegation is not prohibited by applicable
law or contrary to the provisions of the Trust, as set forth herein.
SECTION 819. VOTING.
Except as otherwise provided in this Trust Agreement, the consent or
approval of the Administrative Trustees shall require consent or approval by not
less than a majority of the Administrative Trustees, unless there are only two,
in which case both must consent.
ARTICLE IX
DISSOLUTION, LIQUIDATION AND MERGER
SECTION 901. DISSOLUTION UPON EXPIRATION DATE.
Unless earlier dissolved, the Trust shall automatically dissolve on March
31, 2053 (the "Expiration Date") and the Trust Property shall be distributed in
accordance with Section 904.
SECTION 902. EARLY TERMINATION.
The first to occur of any of the following events is an "Early Termination
Event:"
(a) the occurrence of a Bankruptcy Event in respect of, or the dissolution
or liquidation of, the Depositor;
(b) delivery of written direction to the Property Trustee by the Depositor
at any time (which direction is wholly optional and within the discretion of the
Depositor) to dissolve the Trust and distribute the Debentures to
Securityholders in exchange for the Preferred Securities in accordance with
Section 904;
(c) the redemption of all of the Preferred Securities in connection with the
redemption of all of the Debentures; and
(d) the entry of an order for dissolution of the Trust by a court of
competent jurisdiction.
SECTION 903. TERMINATION.
The respective obligations and responsibilities of the Trustees and the
Trust created and continued hereby shall terminate upon the latest to occur of
the following: (a) the distribution by the Property Trustee to Securityholders
upon the liquidation of the Trust pursuant to Section 904, or upon the
redemption of all of the Trust Securities pursuant to Section 402, of all
amounts required to be distributed hereunder upon the final payment of the Trust
Securities; (b) the payment of any expenses owed by the Trust; (c) the discharge
of all administrative duties of the Administrative
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Trustees, including the performance of any tax reporting obligations with
respect to the Trust or the Securityholders; and (d) the filing of a Certificate
of Cancellation by the Administrative Trustee under the Delaware Business Trust
Act.
SECTION 904. LIQUIDATION.
(a) If an Early Termination Event specified in clause (a), (b), or (d) of
Section 902 occurs or upon the Expiration Date, the Trust shall be liquidated by
the Trustees as expeditiously as the Trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, (including, without limitation, after paying or
making reasonable provision to pay all claims and obligations of the Trust in
accordance with Section 3808(e) of the Delaware Business Trust Act), to each
Securityholder a Like Amount of Debentures, subject to Section 904(d). Notice of
liquidation shall be given by the Property Trustee by first-class mail, postage
prepaid, mailed not later than 30 nor more than 60 days prior to the Liquidation
Date to each Holder of Trust Securities at such Holder's address appearing in
the Securities Register. All notices of liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust
Securities shall no longer be deemed to be Outstanding and any Trust
Securities Certificates not surrendered for exchange shall be deemed to
represent a Like Amount of Debentures; and
(iii) provide such information with respect to the mechanics by which
Holders may exchange Trust Securities Certificates for Debentures, or, if
Section 904(d) applies, receive a Liquidation Distribution, as the
Administrative Trustees or the Property Trustee shall deem appropriate.
(b) Except where Section 902(c) or 904(d) applies, in order to effect the
liquidation of the Trust and distribution of the Debentures to Securityholders,
the Property Trustee shall establish a record date for such distribution (which
shall be not more than 45 days prior to the Liquidation Date) and, either itself
acting as exchange agent or through the appointment of a separate exchange
agent, shall establish such procedures as it shall deem appropriate to effect
the distribution of Debentures in exchange for the Outstanding Trust Securities
Certificates.
(c) Except where Section 902(c) or 904(d) applies, after the Liquidation
Date, (i) the Trust Securities shall no longer be deemed to be outstanding; (ii)
certificates representing a Like Amount of Debentures shall be issued to Holders
of Trust Securities Certificates upon surrender of such certificates to the
Administrative Trustees or their agent for exchange; (iii) the Depositor shall
use its reasonable efforts to have the Debentures listed on the Nasdaq National
Market or on such other securities exchange or other organization as the
Preferred Securities are then listed or traded; (iv) any Trust Securities
Certificates not so surrendered for exchange shall be deemed to represent a Like
Amount of Debentures, accruing interest at the rate provided for in the
Debentures from the last Distribution Date on which a Distribution was made on
such Trust Securities Certificates until such certificates are so surrendered
(and until such certificates are so surrendered, no payments of interest or
principal shall be made to holders of Trust Securities Certificates with respect
to such Debentures); and (v) all rights of Securityholders holding Trust
Securities shall cease, except the right of such Securityholders to receive
Debentures upon surrender of Trust Securities Certificates.
(d) In the event that, notwithstanding the other provisions of this Section
904, whether because of an order for dissolution entered by a court of competent
jurisdiction or otherwise, distribution of the Debentures in the manner provided
herein is determined by the Property Trustee not to be practical, the Trust
Property shall be liquidated, and the Trust shall be dissolved by the Property
Trustee in such manner as the Property Trustee determines. In such event, on the
date of the dissolution of the Trust, Securityholders shall be entitled to
receive out of the assets of the Trust available for distribution to
Securityholders, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, (including, without limitation, after paying or
making reasonable provision to pay all claims and obligations of the Trust in
accordance with Section 3808(e) of the Delaware Business Trust Act), an amount
equal to the Liquidation Amount per Trust Security plus accumulated and unpaid
Distributions thereon to the date of payment
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(such amount being the "Liquidation Distribution"). If, upon any such
dissolution the Liquidation Distribution can be paid only in part because the
Trust has insufficient assets available to pay in full the aggregate Liquidation
Distribution, then, subject to the next succeeding sentence, the amounts payable
by the Trust on the Trust Securities shall be paid on a pro rata basis (based
upon Liquidation Amounts, subject to Section 407). The Holder of the Common
Securities shall be entitled to receive Liquidation Distributions upon any such
dissolution pro rata (determined as aforesaid) with Holders of Preferred
Securities, except that, if a Debenture Event of Default has occurred and is
continuing, the Preferred Securities shall have a priority over the Common
Securities.
SECTION 905. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE
TRUST.
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except pursuant
to this Section 905. At the request of the Depositor, with the consent of the
Administrative Trustees and without the consent of the Holders of the Preferred
Securities, the Property Trustee or the Delaware Trustee, the Trust may merge
with or into, consolidate, amalgamate, be replaced by or convey, transfer or
lease its properties and assets substantially as an entirety to a trust
organized as such under the laws of any State; provided, that (i) such successor
entity either (a) expressly assumes all of the obligations of the Trust with
respect to the Preferred Securities; or (b) substitutes for the Preferred
Securities other securities having substantially the same terms as the Preferred
Securities (the "Successor Securities") so long as the Successor Securities rank
the same as the Preferred Securities rank in priority with respect to
distributions and payments upon liquidation, redemption and otherwise; (ii) the
Depositor expressly appoints a trustee of such successor entity possessing
substantially the same powers and duties as the Property Trustee as the holder
of the Debentures; (iii) the Successor Securities are listed or traded, or any
Successor Securities shall be listed or traded upon notification of issuance, on
any national securities exchange or other organization on which the Preferred
Securities are then listed, if any; (iv) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the Holders of the Preferred
Securities (including any Successor Securities) in any material respect; (v)
prior to such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, the Depositor has received an Opinion of Counsel to the
effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the Holders of the Preferred Securities (including any
Successor Securities) in any material respect; and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
the Trust nor such successor entity shall be required to register as an
"investment company" under the Investment Company Act; and (vi) the Depositor
owns all of the Common Securities of such successor entity and guarantees the
obligations of such successor entity under the Successor Securities at least to
the extent provided by the Guarantee, the Debentures, the Indenture, this Trust
Agreement and the Expense Agreement. Notwithstanding the foregoing, the Trust
shall not, except with the consent of Holders of 100% in Liquidation Amount of
the Preferred Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to any other Person or permit any other Person to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger or replacement would cause the Trust or the successor
entity to be classified as other than a grantor trust for United States federal
income tax purposes.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 1001. LIMITATION OF RIGHTS OF SECURITYHOLDERS.
The death or incapacity of any Person having an interest, beneficial or
otherwise, in Trust Securities shall not operate to terminate this Trust
Agreement, nor entitle the legal representatives or heirs of such Person or any
Securityholder for such Person, to claim an accounting, take any action or bring
any proceeding in any court for a partition or winding-up of the arrangements
contemplated hereby, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them.
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SECTION 1002. AMENDMENT.
(a) This Trust Agreement may be amended from time to time by the Trustees
and the Depositor, without the consent of any Securityholders, (i) as provided
in Section 811 with respect to acceptance of appointment by a successor Trustee;
(ii) to cure any ambiguity, correct or supplement any provision herein or
therein which may be inconsistent with any other provision herein or therein, or
to make any other provisions with respect to matters or questions arising under
this Trust Agreement, that shall not be inconsistent with the other provisions
of this Trust Agreement; or (iii) to modify, eliminate or add to any provisions
of this Trust Agreement to such extent as shall be necessary to ensure that the
Trust shall be classified for United States federal income tax purposes as a
grantor trust at all times that any Trust Securities are outstanding or to
ensure that the Trust shall not be required to register as an "investment
company" under the Investment Company Act; or (iv) to reduce or increase the
Liquidation Amount per Trust Security and simultaneously to increase or reduce
the number of Trust Securities issued and outstanding solely for the purpose of
maintaining the eligibility of the Preferred Securities for listing or quotation
on any national securities exchange or other organization on which the Preferred
Securities are then listed or quoted (including, if applicable, the Nasdaq
National Market), provided, however, that in the case of clause (ii), such
action shall not adversely affect in any material respect the interests of any
Securityholder, and that, in the case of clause (iv), the aggregate Liquidation
Amount of the Trust Securities outstanding upon completion of any such reduction
or increase, must be the same as the aggregate Liquidation Amount of the Trust
Securities outstanding immediately prior to such reduction or increase, and any
amendments of such Trust Agreement will become effective when notice thereof is
given to the Securityholders (or, in the case of an amendment pursuant to clause
(iv), as of the date specified in the notice).
(b) Except as provided in Section 601(c) or Section 1002(c) hereof, any
provision of this Trust Agreement may be amended by the Trustees and the
Depositor (i) with the consent of Trust Securityholders representing not less
than a majority (based upon Liquidation Amounts) of the Trust Securities then
Outstanding; and (ii) upon receipt by the Trustees of an Opinion of Counsel to
the effect that such amendment or the exercise of any power granted to the
Trustees in accordance with such amendment shall not affect the Trust's status
as a grantor trust for United States federal income tax purposes or the Trust's
exemption from status of an "investment company" under the Investment Company
Act.
(c) In addition to and notwithstanding any other provision in this Trust
Agreement, without the consent of each affected Securityholder (such consent
being obtained in accordance with Section 603 or 606 hereof), this Trust
Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount of
any Distribution required to be made in respect of the Trust Securities as of a
specified date; or (ii) restrict the right of a Securityholder to institute suit
for the enforcement of any such payment on or after such date; notwithstanding
any other provision herein, without the unanimous consent of the Securityholders
(such consent being obtained in accordance with Section 603 or 606 hereof), this
paragraph (c) of this Section 1002 may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no Trustee
shall enter into or consent to any amendment to this Trust Agreement which would
cause the Trust to fail or cease to qualify for the exemption from status of an
"investment company" under the Investment Company Act or to fail or cease to be
classified as a grantor trust for United States federal income tax purposes.
(e) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Depositor, this Trust Agreement may not be amended in
a manner which imposes any additional obligation on the Depositor.
(f) In the event that any amendment to this Trust Agreement is made, the
Administrative Trustees shall promptly provide to the Depositor a copy of such
amendment.
(g) Upon the request of the Depositor, accompanied by its board resolutions
authorizing the execution of any such amendments to this Trust Agreement, and
upon the filing with the Property Trustee and the Delaware Trustee of evidence
of the consent of the Securityholders required to consent thereto as aforesaid,
the Property Trustee and the
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Delaware Trustee shall join with the Depositor in the execution of such
amendment to this Trust Agreement unless such amendment affects the Property
Trustee's or the Delaware Trustee's own rights, duties, or immunities under this
Trust Agreement or otherwise, in which case the Property Trustee and Delaware
Trustee may in their own discretion but shall not be obligated to enter into
such amendment to this Trust Agreement. The Property Trustee and Delaware
Trustee, subject to the provisions of Section 801, may receive an Opinion of
Counsel as conclusive evidence that any amendment to this Trust Agreement
executed pursuant to this Article X is authorized or permitted by, and conforms
to, the terms of this Article X and that it is proper for the Property Trustee
and Delaware Trustee under the provisions of this Article X to join in the
execution thereof.
SECTION 1003. SEPARABILITY.
In case any provision in this Trust Agreement or in the Trust Securities
Certificates shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 1004. GOVERNING LAW.
THIS TRUST AGREEMENT AND THE RIGHTS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE
AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS OF THE STATE OF DELAWARE OR ANY OTHER
JURISDICTION THAT WOULD CALL FOR THE APPLICATION OF THE LAW OF ANY JURISDICTION
OTHER THAN THE STATE OF DELAWARE; PROVIDED, HOWEVER, THAT THERE SHALL NOT BE
APPLICABLE TO THE PARTIES HEREUNDER OR THIS TRUST AGREEMENT ANY PROVISION OF THE
LAWS (STATUTORY OR COMMON) OF THE STATE OF DELAWARE PERTAINING TO TRUSTS THAT
RELATE TO OR REGULAR, IN A MANNER INCONSISTENT WITH THE TERMS HEREOF (A) THE
FILING WITH ANY COURT OR GOVERNMENTAL BODY OR AGENCY OF TRUSTEE ACCOUNTS OR
SCHEDULES OF TRUSTEE FEES AND CHARGES (B) AFFIRMATIVE REQUIREMENTS TO POST BONDS
FOR TRUSTEES, OFFICERS, AGENTS OR EMPLOYEES OF A TRUST, (C) THE NECESSITY FOR
OBTAINING COURT OR OTHER GOVERNMENTAL APPROVAL CONCERNING THE ACQUISITION,
HOLDING OR DISPOSITION OF REAL OR PERSONAL PROPERTY, (D) FEES OR OTHER SUMS
PAYABLE TO TRUSTEES, OFFICERS, AGENTS OR EMPLOYEES OF A TRUST, (E) THE
ALLOCATION OF RECEIPTS AND EXPENDITURES TO INCOME OR PRINCIPAL, (F) RESTRICTIONS
OR LIMITATIONS ON THE PERMISSIBLE NATURE, AMOUNT OR CONCENTRATION OF TRUST
INVESTMENTS OR REQUIREMENTS RELATING TO THE TITLING, STORAGE OR OTHER MANNER OF
HOLDING OR INVESTING TRUST ASSETS OR (G) THE ESTABLISHMENT OF FIDUCIARY OR OTHER
STANDARDS OF RESPONSIBILITY OR LIMITATIONS ON THE ACTS OR POWERS OF TRUSTEES
THAT ARE INCONSISTENT WITH THE LIMITATIONS OR LIABILITIES OR AUTHORITIES AND
POWERS OF THE TRUSTEES HEREUNDER AS SET FORTH OR REFERENCED IN THIS TRUST
AGREEMENT. SECTION 3540 OF TITLE 12 OF THE DELAWARE CODE SHALL NOT APPLY TO THE
TRUST.
SECTION 1005. PAYMENTS DUE ON NON-BUSINESS DAY.
If the date fixed for any payment on any Trust Security shall be a day that
is not a Business Day, then such payment need not be made on such date but may
be made on the next succeeding day which is a Business Day, with the same force
and effect as though made on the date fixed for such payment, and no
distribution shall accumulate thereon for the period after such date.
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SECTION 1006. SUCCESSORS.
This Trust Agreement shall be binding upon and shall inure to the benefit of
any successor to the Depositor, the Trust or the Relevant Trustee(s), including
any successor by operation of law. Except in connection with a consolidation,
merger or sale involving the Depositor that is permitted under Article XII of
the Indenture and pursuant to which the assignee agrees in writing to perform
the Depositor's obligations hereunder, the Depositor shall not assign its
obligations hereunder.
SECTION 1007. HEADINGS.
The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement.
SECTION 1008. REPORTS, NOTICES AND DEMANDS.
Any report, notice, demand or other communication which by any provision of
this Trust Agreement is required or permitted to be given or served to or upon
any Securityholder or the Depositor may be given or served in writing by deposit
thereof, first-class postage prepaid, in the United States mail, hand delivery
or facsimile transmission, in each case, addressed, (a) in the case of a
Preferred Securityholder, to such Preferred Securityholder as such
Securityholder's name and address may appear on the Securities Register; and (b)
in the case of the Common Securityholder or the Depositor, to Abington Bancorp,
Inc., 536 Washington Street, Abington, Massachusetts 02351, Attention: Chief
Financial Officer, facsimile no.: 781-393-4071. Any notice to Preferred
Securityholders shall also be given to such owners as have, within two years
preceding the giving of such notice, filed their names and addresses with the
Property Trustee for that purpose. Such notice, demand or other communication to
or upon a Securityholder shall be deemed to have been sufficiently given or
made, for all purposes, upon hand delivery, mailing or transmission.
Any notice, demand or other communication which by any provision of this
Trust Agreement is required or permitted to be given or served to or upon the
Trust, the Property Trustee or the Administrative Trustees shall be given in
writing addressed (until another address is published by the Trust) as follows:
(a) with respect to the Property Trustee to State Street Bank and Trust Company,
Two International Place, 4th Floor, Boston, Massachusetts 02110, Attention:
Corporate Trust Department; (b) with respect to the Delaware Trustee, to
Wilmington Trust Company, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration; and
(c) with respect to the Administrative Trustees, to them at the address above
for notices to the Depositor, marked "Attention: Administrative Trustees of
Abington Bancorp Capital Trust." Such notice, demand or other communication to
or upon the Trust or the Property Trustee shall be deemed to have been
sufficiently given or made only upon actual receipt of the writing by the Trust
or the Property Trustee.
SECTION 1009. AGREEMENT NOT TO PETITION.
Each of the Trustees and the Depositor agrees for the benefit of the
Securityholders that, until at least one year and 1 day after the Trust has been
terminated in accordance with Article IX, they shall not file, or join in the
filing of, a petition against the Trust under any bankruptcy, insolvency,
reorganization or other similar law (including, without limitation, the United
States Bankruptcy Code of 1978, as amended) (collectively, "Bankruptcy Laws") or
otherwise join in the commencement of any proceeding against the Trust under any
Bankruptcy Law. In the event the Depositor takes action in violation of this
Section 1009, the Property Trustee agrees, for the benefit of Securityholders,
that at the expense of the Depositor (which expense shall be paid prior to the
filing), it shall file an answer with the bankruptcy court or otherwise properly
contest the filing of such petition by the Depositor against the Trust or the
commencement of such action and raise the defense that the Depositor has agreed
in writing not to take such action and should be stopped and precluded
therefrom. The provisions of this Section 1009 shall survive the termination of
this Trust Agreement.
-37-
<PAGE> 43
SECTION 1010. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT.
(a) This Trust Agreement is subject to the provisions of the Trust Indenture
Act that are required to be part of this Trust Agreement and shall, to the
extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee which is a trustee for
the purposes of the Trust Indenture Act.
(c) If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Trust Agreement by any
of the provisions of the Trust Indenture Act, such required provision shall
control. If any provision of this Trust Agreement modifies or excludes any
provision of the Trust Indenture Act which may be so modified or excluded, the
latter provision shall be deemed to apply to this Trust Agreement as so modified
or to be excluded, as the case may be.
(d) The application of the Trust Indenture Act to this Trust Agreement shall
not affect the nature of the Trust Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
SECTION 1011. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND INDENTURE.
The receipt and acceptance of a Trust Security or any interest therein by or
on behalf of a Securityholder or any beneficial owner, without any signature or
further manifestation of assent, shall constitute the unconditional acceptance
by the Securityholder and all others having a beneficial interest in such Trust
Security of all the terms and provisions of this Trust Agreement and agreement
to the subordination provisions and other terms of the Guarantee and the
Indenture, and shall constitute the agreement of the Trust, such Securityholder
and such others that the terms and provisions of this trust agreement shall be
binding, operative and effective as between the Trust and such Securityholder
and such others.
ABINGTON BANCORP, INC.
By:
---------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY,
as Property Trustee
By:
---------------------------------------
Name:
Title:
WILMINGTON TRUST COMPANY,
as Delaware Trustee
By:
---------------------------------------
Name:
Title:
-38-
<PAGE> 44
_____________________, as Administrative Trustee
[_____________]
_____________________, as Administrative Trustee
[_____________]
_____________________, as Administrative Trustee
[_____________]
-39-
<PAGE> 1
EXHIBIT 4.5
Certificate Number Number of Preferred Securities
P-
CERTIFICATE EVIDENCING PREFERRED SECURITIES
OF
ABINGTON BANCORP CAPITAL TRUST
___% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY)
Abington Bancorp Capital Trust, a statutory business trust created under
the laws of the State of Delaware (the "Trust"), hereby certifies that
_______________ (the "Holder") is the registered owner of _______preferred
securities of the Trust representing undivided beneficial interests in the
assets of the Trust and designated the __________% Cumulative Trust Preferred
Securities (liquidation amount $10 per Preferred Security) (the "Preferred
Securities"). The Preferred Securities are transferable on the books and records
of the Trust, in person or by a duly authorized attorney, upon surrender of this
certificate duly endorsed and in proper form for transfer as provided in Section
504 of the Trust Agreement. The designations, rights, privileges, restrictions,
preferences, and other terms and provisions of the Preferred Securities are set
forth in, and this certificate and the Preferred Securities represented hereby
are issued and shall in all respects be subject to the terms and provisions of,
the Amended and Restated Trust Agreement of the Trust dated as of __________,
1998, as the same may be amended from time to time (the "Trust Agreement"),
including the designation of the terms of Preferred Securities as set forth
therein. The Holder is entitled to the benefits of the Preferred Securities
Guarantee Agreement entered into by Abington Bancorp, Inc., a Massachusetts
corporation, and State Street Bank and Trust Company, as guarantee trustee,
dated as of ______________, 1998 (the "Guarantee"), to the extent provided
therein. The Trust shall furnish a copy of the Trust Agreement and the Guarantee
to the Holder without charge upon written request to the Trust at its principal
place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust Agreement
and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has
executed this certificate this ____day of ____________, 1998.
ABINGTON BANCORP CAPITAL TRUST
By: _____________________________________
Name:
Title:
<PAGE> 2
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
This is one of the _____% Cumulative Trust Preferred Securities described in
the within-mentioned Amended and Restated Trust Agreement.
Dated:____________________________
STATE STREET BANK AND TRUST COMPANY,
as Authentication Agent and Registrar
By_______________________________
Authorized Signatory
By______________________________
Administrative Trustee
<PAGE> 1
EXHIBIT 4.6
PREFERRED SECURITIES GUARANTEE AGREEMENT
BY AND BETWEEN
ABINGTON BANCORP, INC.
AND
STATE STREET BANK AND TRUST COMPANY
_______________, 1998
<PAGE> 2
CROSS-REFERENCE TABLE
SECTION OF
TRUST INDENTURE ACT SECTION OF
OF 1939, AS AMENDED INDENTURE
- ------------------- ---------
310(a)....................................................... 4.1(a)
310(b)....................................................... 4.1(c), 2.8
310(c)....................................................... Not Applicable
311(a)....................................................... 2.2(b)
311(b)....................................................... 2.2(b)
311(c)....................................................... Not Applicable
312(a)....................................................... 2.2(a)
312(b)....................................................... 2.2(b)
313.......................................................... 2.3
314(a)....................................................... 2.4
314(b)....................................................... Not Applicable
314(c)....................................................... 2.5
314(d)....................................................... Not Applicable
314(e)....................................................... 1.1, 2.5,3.2
314(f)....................................................... 2.1, 3.2
315(a)....................................................... 3.1(d)
315(b)....................................................... 2.7
315(c)....................................................... 3.1
315(d)....................................................... 3.1(d)
316(a)....................................................... 1.1, 2.6, 5.4
316(b)....................................................... 5.3
317(a)....................................................... 3.1
317(b)....................................................... Not Applicable
318(a)....................................................... 2.1
318(b)....................................................... 2.1
318(c)....................................................... 2.1(b)
Note: This Cross-Reference Table does not constitute part of this Agreement and
shall not affect the interpretation of any of its terms or provisions.
<PAGE> 3
PREFERRED SECURITIES GUARANTEE AGREEMENT
THIS PREFERRED SECURITIES GUARANTEE AGREEMENT (this "Preferred Securities
Guarantee"), dated as of ___________, 1998, is executed and delivered by
ABINGTON BANCORP, INC., a Massachusetts corporation (the "Guarantor"), and STATE
STREET BANK AND TRUST COMPANY, a trust company organized and existing under the
laws of The Commonwealth of Massachusetts, as trustee (the "Preferred Guarantee
Trustee"), for the benefit of the Holders (as defined herein) from time to time
of the Preferred Securities (as defined herein) of ABINGTON BANCORP CAPITAL
TRUST, a Delaware statutory business trust (the "Trust").
RECITALS
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the "Trust
Agreement"), dated as of ___________, 1998, among the trustees of the Trust
named therein, the Guarantor, as depositor, and the holders from time to time of
undivided beneficial interests in the assets of the Trust, the Trust is issuing
on the date hereof 1,100,000 preferred securities, having an aggregate
liquidation amount of $11,000,000, designated the ________% Cumulative Trust
Preferred Securities (the "Preferred Securities");
WHEREAS, as incentive for the Holders to purchase the Preferred Securities,
the Guarantor desires irrevocably and unconditionally to agree, to the extent
set forth in this Preferred Securities Guarantee, to pay to the Holders of the
Preferred Securities the Guarantee Payments (as defined herein) and to make
certain other payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of Preferred
Securities, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Preferred Securities
Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. DEFINITIONS AND INTERPRETATION.
In this Preferred Securities Guarantee, unless the context otherwise
requires:
(a) capitalized terms used in this Preferred Securities Guarantee but not
defined in the preamble above have the respective meanings assigned to them in
this Section 1.1;
(b) terms defined in the Trust Agreement as at the date of execution of this
Preferred Securities Guarantee have the same meaning when used in this Preferred
Securities Guarantee;
(c) a term defined anywhere in this Preferred Securities Guarantee has the
same meaning throughout;
(d) all references to "the Preferred Securities Guarantee" or "this
Preferred Securities Guarantee" are to this Preferred Securities Guarantee as
modified, supplemented or amended from time to time;
(e) all references in this Preferred Securities Guarantee to Articles and
Sections are to Articles and Sections of this Preferred Securities Guarantee,
unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same meaning when used
in this Preferred Securities Guarantee, unless otherwise defined in this
Preferred Securities Guarantee or unless the context otherwise requires; and
<PAGE> 4
(g) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than a day on which federal or state
banking institutions in New York, New York are authorized or required by law,
executive order or regulation to close or a day on which the Corporate Trust
Office of the Preferred Guarantee Trustee is closed for business.
"Corporate Trust Office" means the office of the Preferred Guarantee Trustee
at which the corporate trust business of the Preferred Guarantee Trustee shall,
at any particular time, be principally administered, which office at the date of
execution of this Preferred Securities Guarantee is located at Two International
Place, 4th Floor, Boston, Massachusetts 02110, Attention: Corporate Trust
Department.
"Covered Person" means any Holder or beneficial owner of Preferred
Securities. "Debentures" means the ____% Junior Subordinated Debentures due June
30, 2029, of the Debenture Issuer held by the Property Trustee of the Trust.
"Debenture Issuer" means the Guarantor.
"Event of Default" means a default by the Guarantor on any of its payment or
other obligations under this Preferred Securities Guarantee.
"Guarantor" means Abington Bancorp, Inc., a Massachusetts corporation.
"Guarantee Payments" means the following payments or distributions, without
duplication, with respect to the Preferred Securities, to the extent not paid or
made by the Trust: (i) any accrued and unpaid Distributions that are required to
be paid on such Preferred Securities, to the extent the Trust shall have funds
available therefor, (ii) the redemption price, including all accrued and unpaid
Distributions to the date of redemption (the "Redemption Price"), to the extent
the Trust has funds available therefor, with respect to any Preferred Securities
called for redemption by the Trust, and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of the Trust (other than in connection
with the distribution of Debentures to the Holders in exchange for Preferred
Securities as provided in the Trust Agreement), the lesser of (a) the aggregate
of the Liquidation Amount and all accrued and unpaid Distributions on the
Preferred Securities to the date of payment, to the extent the Trust shall have
funds available therefor (the "Liquidation Distribution"), and (b) the amount of
assets of the Trust remaining available for distribution to Holders in
liquidation of the Trust.
"Holder" means a Person in whose name a Preferred Security is or Preferred
Securities are registered in the Securities Register; any such Person is a
beneficial owner within the meaning of the Delaware Business Trust Act;
provided, however, that, in determining whether the holders of the requisite
percentage of Preferred Securities have given any request, notice, consent or
waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of
the Guarantor.
"Indemnified Person" means the Preferred Guarantee Trustee, any Affiliate of
the Preferred Guarantee Trustee, or any officers, directors, shareholders,
members, partners, employees, representatives, nominees, custodians or agents of
the Preferred Guarantee Trustee.
"Indenture" means the Indenture dated as of __________, 1998, among the
Debenture Issuer and State Street Bank and Trust Company, as trustee, and any
indenture supplemental thereto pursuant to which Subordinated Debentures of the
Debenture Issuer are to be issued to the Property Trustee of the Trust.
"Liquidation Distribution" has the meaning provided therefor in the
definition of Guarantee Payments.
<PAGE> 5
"Majority in Liquidation Amount of the Preferred Securities" means the
holders of more than 50% of the Liquidation Amount (including the stated amount
that would be paid on redemption, liquidation or otherwise, plus accrued and
unpaid Distributions to the date upon which the voting percentages are
determined) of all of the Preferred Securities.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by two authorized officers of such Person. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate has read
the covenant or condition and the definition relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer, such
condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Preferred Guarantee Trustee" means State Street Bank and Trust Company,
until a Successor Preferred Guarantee Trustee has been appointed and has
accepted such appointment pursuant to the terms of this Preferred Securities
Guarantee and thereafter means each such Successor Preferred Guarantee Trustee.
"Redemption Price" has the meaning provided therefor in the definition of
Guarantee Payments.
"Responsible Officer" means, with respect to the Preferred Guarantee
Trustee, any officer within the Corporate Trust Office of the Preferred
Guarantee Trustee, including any vice-president, any assistant vice-president,
any assistant secretary, the treasurer, any assistant treasurer or other officer
of the Corporate Trust Office of the Preferred Guarantee Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of that officer's
knowledge of and familiarity with the particular subject.
"Successor Preferred Guarantee Trustee" means a successor Preferred
Guarantee Trustee possessing the qualifications to act as Preferred Guarantee
Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as
in force at the date of which this instrument was executed; provided, however,
that in the event the Trust Indenture Act of 1939, as amended, is amended after
such date, "Trust Indenture Act" means, to the extent required by any such
amendment, the Trust Indenture Act of 1939, as so amended.
<PAGE> 6
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1. TRUST INDENTURE ACT; APPLICATION.
(a) This Preferred Securities Guarantee is subject to the provisions of the
Trust Indenture Act that are required to be part of this Preferred Securities
Guarantee and shall, to the extent applicable, be governed by such provisions.
(b) If and to the extent that any provision of this Preferred Securities
Guarantee limits, qualifies or conflicts with the duties imposed by Section 310
to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
SECTION 2.2. LIST OF HOLDERS OF SECURITIES.
(a) In the event the Preferred Guarantee Trustee is not also the Securities
Registrar, the Guarantor shall provide the Preferred Guarantee Trustee with a
list, in such form as the Preferred Guarantee Trustee may reasonably require, of
the names and addresses of the Holders of the Preferred Securities (the "List of
Holders") as of such date, (i) within 1 Business Day after January 1 and June 30
of each year, and (ii) at any other time within 30 days of receipt by the
Guarantor of a written request for a List of Holders as of a date no more than
15 days before such List of Holders is given to the Preferred Guarantee Trustee;
provided, that the Guarantor shall not be obligated to provide such List of
Holders at any time the List of Holders does not differ from the most recent
List of Holders given to the Preferred Guarantee Trustee by the Guarantor. The
Preferred Guarantee Trustee may destroy any List of Holders previously given to
it on receipt of a new List of Holders.
(b) The Preferred Guarantee Trustee shall comply with its obligations under
Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act.
SECTION 2.3. REPORTS BY THE PREFERRED GUARANTEE TRUSTEE.
On or before July 15 of each year, the Preferred Guarantee Trustee shall
provide to the Holders of the Preferred Securities such reports as are required
by Section 313 of the Trust Indenture Act, if any, in the form and in the manner
provided by Section 313 of the Trust Indenture Act. The Preferred Guarantee
Trustee shall also comply with the requirements of Section 313(d) of the Trust
Indenture Act.
SECTION 2.4. PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE.
The Guarantor shall provide to the Preferred Guarantee Trustee such
documents, reports and information as required by Section 314 (if any) and the
compliance certificate required by Section 314 of the Trust Indenture Act in the
form, in the manner and at the times required by Section 314 of the Trust
Indenture Act.
SECTION 2.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
The Guarantor shall provide to the Preferred Guarantee Trustee such evidence
of compliance with any conditions precedent, if any, provided for in this
Preferred Securities Guarantee that relate to any of the matters set forth in
Section 314(c) of the Trust Indenture Act. Any certificate or opinion required
to be given by an officer pursuant to Section 314(c)(1) may be given in the form
of an Officers' Certificate.
SECTION 2.6. EVENTS OF DEFAULT; WAIVER.
The Holders of a Majority in Liquidation Amount of Preferred Securities may,
by vote, on behalf of the Holders of all of the Preferred Securities, waive any
past Event of Default and its consequences. Upon such waiver, any such Event of
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured, for every
<PAGE> 7
purpose of this Preferred Securities Guarantee, but no such waiver shall extend
to any subsequent or other default or Event of Default or impair any right
consequent thereon.
SECTION 2.7. EVENT OF DEFAULT; NOTICE.
(a) The Preferred Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Preferred Securities, notices of all Events of
Default actually known to a Responsible Officer of the Preferred Guarantee
Trustee, unless such defaults have been cured before the giving of such notice;
provided, that the Preferred Guarantee Trustee shall be protected in withholding
such notice if and so long as a Responsible Officer of the Preferred Guarantee
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders of the Preferred Securities.
(b) The Preferred Guarantee Trustee shall not be deemed to have knowledge of
any Event of Default unless the Preferred Guarantee Trustee shall have received
written notice, or of which a Responsible Officer of the Preferred Guarantee
Trustee charged with the administration of the Trust Agreement shall have
obtained actual knowledge of such Event of Default.
SECTION 2.8. CONFLICTING INTERESTS.
The Trust Agreement shall be deemed to be specifically described in this
Preferred Securities Guarantee for the purposes of clause (i) of the first
proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE
SECTION 3.1. POWERS AND DUTIES OF THE PREFERRED GUARANTEE TRUSTEE.
(a) This Preferred Securities Guarantee shall be held by the Preferred
Guarantee Trustee for the benefit of the Holders of the Preferred Securities,
and the Preferred Guarantee Trustee shall not transfer this Preferred Securities
Guarantee to any Person except a Holder of Preferred Securities exercising his
or her rights pursuant to Section 5.4(b) or to a Successor Preferred Guarantee
Trustee on acceptance by such Successor Preferred Guarantee Trustee of its
appointment to act as Successor Preferred Guarantee Trustee. The right, title
and interest of the Preferred Guarantee Trustee shall automatically vest in any
Successor Preferred Guarantee Trustee, and such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered pursuant to the appointment of such Successor Preferred Guarantee
Trustee.
(b) If an Event of Default actually known to a Responsible Officer of the
Preferred Guarantee Trustee has occurred and is continuing, the Preferred
Guarantee Trustee shall enforce this Preferred Securities Guarantee for the
benefit of the Holders of the Preferred Securities.
(c) The Preferred Guarantee Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Preferred Securities Guarantee, and no implied covenants shall be read into
this Preferred Securities Guarantee against the Preferred Guarantee Trustee. In
case an Event of Default has occurred (that has not been cured or waived
pursuant to Section 2.6) and is actually known to a Responsible Officer of the
Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall exercise such
of the rights and powers vested in it by this Preferred Securities Guarantee,
and use the same degree of care and skill in its exercise thereof, as a prudent
person would exercise or use under the circumstances in the conduct of his or
her own affairs.
(d) No provision of this Preferred Securities Guarantee shall be construed
to relieve the Preferred Guarantee Trustee from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
<PAGE> 8
(i) prior to the occurrence of any Event of Default and after the curing
or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Preferred Guarantee Trustee
shall be determined solely by the express provisions of this Preferred
Securities Guarantee, and the Preferred Guarantee Trustee shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Preferred Securities Guarantee, and no
implied covenants or obligations shall be read into this Preferred
Securities Guarantee against the Preferred Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Preferred
Guarantee Trustee, the Preferred Guarantee Trustee may conclusively rely,
as to the truth of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions furnished to the
Preferred Guarantee Trustee and conforming to the requirements of this
Preferred Securities Guarantee; but in the case of any such certificates
or opinions that by any provision hereof are specifically required to be
furnished to the Preferred Guarantee Trustee, the Preferred Guarantee
Trustee shall be under a duty to examine the same to determine whether or
not they conform to the requirements of this Preferred Securities
Guarantee;
(ii) the Preferred Guarantee Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer of the Preferred
Guarantee Trustee, unless it shall be proved that the Preferred Guarantee
Trustee was negligent in ascertaining the pertinent facts upon which such
judgment was made;
(iii) the Preferred Guarantee Trustee shall not be liable with respect
to any action taken or omitted to be taken by it in good faith in accordance
with the direction of the Holders of not less than a Majority in Liquidation
Amount of the Preferred Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Preferred
Guarantee Trustee, or exercising any trust or power conferred upon the
Preferred Guarantee Trustee under this Preferred Securities Guarantee; and
(iv) no provision of this Preferred Securities Guarantee shall require
the Preferred Guarantee Trustee to expend or risk its own funds or otherwise
incur personal financial liability in the performance of any of its duties
or in the exercise of any of its rights or powers, if the Preferred
Guarantee Trustee shall have reasonable grounds for believing that the
repayment of such funds or liability is not reasonably assured to it under
the terms of this Preferred Securities Guarantee or indemnity, reasonably
satisfactory to the Preferred Guarantee Trustee, against such risk or
liability is not reasonably assured to it.
SECTION 3.2. CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE.
(a) Subject to the provisions of Section 3.1:
(i) the Preferred Guarantee Trustee may conclusively rely, and shall be
fully protected in acting or refraining from acting upon, any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to
have been signed, sent or presented by the proper party or parties;
(ii) any direction or act of the Guarantor contemplated by this
Preferred Securities Guarantee shall be sufficiently evidenced by an
Officers' Certificate;
(iii) whenever, in the administration of this Preferred Securities
Guarantee, the Preferred Guarantee Trustee shall deem it desirable that a
matter be proved or established before taking, suffering or omitting any
action hereunder, the Preferred Guarantee Trustee (unless other evidence is
herein specifically prescribed) may, in the absence of bad faith on its
part, request and conclusively rely upon an Officers' Certificate which,
upon receipt of such request, shall be promptly delivered by the Guarantor;
<PAGE> 9
(iv) the Preferred Guarantee Trustee shall have no duty to see to any
recording, filing or registration of any instrument (or any rerecording,
refiling or registration thereof);
(v) the Preferred Guarantee Trustee may consult with counsel, and the
written advice or opinion of such counsel with respect to legal matters
shall be full and complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder in good faith and in
accordance with such advice or opinion. Such counsel may be counsel to the
Guarantor or any of its Affiliates and may include any of its employees. The
Preferred Guarantee Trustee shall have the right at any time to seek
instructions concerning the administration of this Preferred Securities
Guarantee from any court of competent jurisdiction;
(vi) the Preferred Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Preferred
Securities Guarantee at the request or direction of any Holder, unless such
Holder shall have provided to the Preferred Guarantee Trustee such security
and indemnity, reasonably satisfactory to the Preferred Guarantee Trustee,
against the costs, expenses (including attorneys' fees and expenses and the
expenses of the Preferred Guarantee Trustee's agents, nominees or
custodians) and liabilities that might be incurred by it in complying with
such request or direction, including such reasonable advances as may be
requested by the Preferred Guarantee Trustee; provided that, nothing
contained in this Section 3.2(a)(vi) shall be taken to relieve the Preferred
Guarantee Trustee, upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by this Preferred
Securities Guarantee;
(vii) the Preferred Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Preferred Guarantee
Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit;
(viii) the Preferred Guarantee Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents, nominees, custodians or attorneys, and the Preferred
Guarantee Trustee shall not be responsible for any misconduct or negligence
on the part of any agent or attorney appointed with due care by it
hereunder;
(ix) no third party shall be required to inquire as to the authority of
the Preferred Guarantee Trustee to so act or as to its compliance with any
of the terms and provisions of this Preferred Securities Guarantee, both of
which shall be conclusively evidenced by the Preferred Guarantee Trustee's
or its agent's taking such action;
(x) whenever in the administration of this Preferred Securities
Guarantee the Preferred Guarantee Trustee shall deem it desirable to receive
instructions with respect to enforcing any remedy or right or taking any
other action hereunder, the Preferred Guarantee Trustee (i) may request
instructions from the Holders of a Majority in Liquidation Amount of the
Preferred Securities, (ii) may refrain from enforcing such remedy or right
or taking such other action until such instructions are received, and (iii)
shall be protected in conclusively relying on or acting in accordance with
such instructions.
(b) No provision of this Preferred Securities Guarantee shall be deemed to
impose any duty or obligation on the Preferred Guarantee Trustee to perform any
act or acts or exercise any right, power, duty or obligation conferred or
imposed on it in any jurisdiction in which it shall be illegal, or in which the
Preferred Guarantee Trustee shall be unqualified or incompetent in accordance
with applicable law, to perform any such act or acts or to exercise any such
right, power, duty or obligation. No permissive power or authority available to
the Preferred Guarantee Trustee shall be construed to be a duty.
<PAGE> 10
SECTION 3.3. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE.
The Recitals contained in this Guarantee shall be taken as the statements of
the Guarantor, and the Preferred Guarantee Trustee does not assume any
responsibility for their correctness. The Preferred Guarantee Trustee makes no
representation as to the validity or sufficiency of this Preferred Securities
Guarantee.
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1. PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY.
(a) There shall at all times be a Preferred Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the laws of the
United States of America or any state or territory thereof or of the
District of Columbia, or a corporation or Person permitted by the Securities
and Exchange Commission to act as an institutional trustee under the Trust
Indenture Act, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $50,000,000, and
subject to supervision or examination by federal, state, territorial or
District of Columbia authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of the
supervising or examining authority referred to above, then, for the purposes
of this Section 4.1(a)(ii), the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published.
(b) If at any time the Preferred Guarantee Trustee shall cease to be
eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall
immediately resign in the manner and with the effect set out in Section 4.2(c).
(c) If the Preferred Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Preferred Guarantee Trustee and Guarantor shall in all respects comply with the
provisions of Section 310(b) of the Trust Indenture Act.
SECTION 4.2. APPOINTMENT, REMOVAL AND RESIGNATION OF PREFERRED GUARANTEE
TRUSTEE.
(a) Subject to Section 4.2(b), the Preferred Guarantee Trustee may be
appointed or removed without cause at any time by the Guarantor.
(b) The Preferred Guarantee Trustee shall not be removed in accordance with
Section 4.2(a) until a Successor Preferred Guarantee Trustee has been appointed
and has accepted such appointment by written instrument executed by such
Successor Preferred Guarantee Trustee and delivered to the Guarantor.
(c) The Preferred Guarantee Trustee appointed to office shall hold office
until a Successor Preferred Guarantee Trustee shall have been appointed or until
its removal or resignation. The Preferred Guarantee Trustee may resign from
office (without need for prior or subsequent accounting) by an instrument in
writing executed by the Preferred Guarantee Trustee and delivered to the
Guarantor, which resignation shall not take effect until a Successor Preferred
Guarantee Trustee has been appointed and has accepted such appointment by
instrument in writing executed by such Successor Preferred Guarantee Trustee and
delivered to the Guarantor and the resigning Preferred Guarantee Trustee.
(d) If no Successor Preferred Guarantee Trustee shall have been appointed
and accepted appointment as provided in this Section 4.2 within 60 days after
delivery to the Guarantor of an instrument of resignation, the resigning
Preferred Guarantee Trustee may petition any court of competent jurisdiction for
appointment of a Successor Preferred
<PAGE> 11
Guarantee Trustee. Such court may thereupon, after prescribing such notice, if
any, as it may deem proper, appoint a Successor Preferred Guarantee Trustee.
(e) No Preferred Guarantee Trustee shall be liable for the acts or omissions
to act of any Successor Preferred Guarantee Trustee.
(f) Upon termination of this Preferred Securities Guarantee or removal or
resignation of the Preferred Guarantee Trustee pursuant to this Section 4.2, the
Guarantor shall pay to the Preferred Guarantee Trustee all amounts accrued to
the date of such termination, removal or resignation.
ARTICLE V
GUARANTEE
SECTION 5.1. GUARANTEE.
The Guarantor irrevocably and unconditionally agrees to pay in full to the
Holders the Guarantee Payments (without duplication of amounts theretofore paid
by the Trust), as and when due, regardless of any defense, right of set-off or
counterclaim that the Trust may have or assert. The Guarantor's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Guarantor to the Holders or by causing the Trust to pay such
amounts to the Holders.
SECTION 5.2. WAIVER OF NOTICE AND DEMAND.
The Guarantor hereby waives notice of acceptance of this Preferred
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first against
the Trust or any other Person before proceeding against the Guarantor, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.
SECTION 5.3. OBLIGATIONS NOT AFFECTED.
The obligations, covenants, agreements and duties of the Guarantor under
this Preferred Securities Guarantee shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Trust of any express or implied agreement,
covenant, term or condition relating to the Preferred Securities to be performed
or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or any portion
of the Distributions, Redemption Price, Liquidation Distribution or any other
sums payable under the terms of the Preferred Securities or the extension of
time for the performance of any other obligation under, arising out of, or in
connection with, the Preferred Securities (other than an extension of time for
payment of Distributions, Redemption Price, Liquidation Distribution or other
sum payable that results from the extension of any interest payment period on
the Debentures or any extension of the maturity date of the Debentures permitted
by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part of the
Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Preferred Securities, or
any action on the part of the Trust granting indulgence or extension of any
kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust;
<PAGE> 12
(e) any invalidity of, or defect or deficiency in, the Preferred Securities;
(f) any failure or omission to receive any regulatory approval or consent
required in connection with the Preferred Securities (or the common equity
securities issued by the Trust), including the failure to receive any approval
of the Board of Governors of the Federal Reserve System required for the
redemption of the Preferred Securities;
(g) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or
(h) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain
consent of, the Guarantor with respect to the happening of any of the foregoing.
SECTION 5.4. RIGHTS OF HOLDERS.
(a) The Holders of a Majority in Liquidation Amount of the Preferred
Securities have the right to direct the time, method and place of conducting of
any proceeding for any remedy available to the Preferred Guarantee Trustee in
respect of this Preferred Securities Guarantee or exercising any trust or power
conferred upon the Preferred Guarantee Trustee under this Preferred Securities
Guarantee.
(b) Any Holder of Preferred Securities may institute a legal proceeding
directly against the Guarantor to enforce its rights under this Preferred
Securities Guarantee, without first instituting a legal proceeding against the
Trust, the Preferred Guarantee Trustee or any other Person.
SECTION 5.5. GUARANTEE OF PAYMENT.
This Preferred Securities Guarantee creates a guarantee of payment and not
of collection.
SECTION 5.6. SUBROGATION.
The Guarantor shall be subrogated to all (if any) rights of the Holders of
Preferred Securities against the Trust in respect of any amounts paid to such
Holders by the Guarantor under this Preferred Securities Guarantee; provided,
however, that the Guarantor shall not (except to the extent required by
mandatory provisions of law) be entitled to enforce or exercise any right that
it may acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Preferred Securities
Guarantee, if, at the time of any such payment, any amounts are due and unpaid
under this Preferred Securities Guarantee. If any amount shall be paid to the
Guarantor in violation of the preceding sentence, the Guarantor agrees to hold
such amount in trust for the Holders and to pay over such amount to the Holders.
SECTION 5.7. INDEPENDENT OBLIGATIONS.
The Guarantor acknowledges that its obligations hereunder are independent of
the obligations of the Trust with respect to the Preferred Securities, and that
the Guarantor shall be liable as principal and as debtor hereunder to make
Guarantee Payments pursuant to the terms of this Preferred Securities Guarantee
notwithstanding the occurrence of any event referred to in subsections (a)
through (h), inclusive, of Section 5.3 hereof.
<PAGE> 13
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1. LIMITATION ON TRANSACTIONS.
So long as any Preferred Securities remain outstanding, if any of the
circumstances described in Section 5.6 of the Indenture shall have occurred,
then
(a) the Guarantor shall not declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock and
(b) the Guarantor shall not make any payment of interest or principal on or
repay, repurchase or redeem any debt securities issued by the Guarantor which
rank pari passu with or junior to the Debentures other than payments under this
Preferred Securities Guarantee and
(c) the Guarantor shall not redeem, purchase or acquire less than all of the
Outstanding Debentures or any of the Preferred Securities.
SECTION 6.2 RANKING.
This Preferred Securities Guarantee will constitute an unsecured obligation
of the Guarantor and will rank (i) subordinate and junior in right of payment to
all other liabilities of the Guarantor, (ii) pari passu with the most senior
preferred securities or preference stock now or hereafter issued by the
Guarantor and with any guarantee now or hereafter entered into by the Guarantor
in respect of any preferred securities or preference stock of any Affiliate of
the Guarantor, and (iii) senior to the Guarantor's common stock.
ARTICLE VII
TERMINATION
SECTION 7.1. TERMINATION.
This Preferred Securities Guarantee shall terminate upon (i) full payment of
the Redemption Price of all Preferred Securities, (ii) upon full payment of the
amounts payable in accordance with the Trust Agreement upon liquidation of the
Trust, or (iii) upon distribution of the Debentures to the Holders of the
Preferred Securities. Notwithstanding the foregoing, this Preferred Securities
Guarantee shall continue to be effective or shall be reinstated, as the case may
be, if at any time any Holder of Preferred Securities must restore payment of
any sums paid under the Preferred Securities or under this Preferred Securities
Guarantee.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1. EXCULPATION.
(a) No Indemnified Person shall be liable, responsible or accountable in
damages or otherwise to the Guarantor or any Covered Person for any loss, damage
or claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith in accordance with this Preferred Securities
Guarantee and in a manner that such Indemnified Person reasonably believed to be
within the scope of the authority conferred on such Indemnified Person by this
Preferred Securities Guarantee or by law, except that an Indemnified Person
shall be liable for any such loss, damage or claim incurred by reason of such
Indemnified Person's negligence or willful misconduct with respect to such acts
or omissions.
<PAGE> 14
(b) An Indemnified Person shall be fully protected in relying in good faith
upon the records of the Guarantor and upon such information, opinions, reports
or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Guarantor, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Preferred Securities might properly be paid.
SECTION 8.2. INDEMNIFICATION.
The Guarantor agrees to indemnify each Indemnified Person for, and to hold
each Indemnified Person harmless against, any loss, liability or expense
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against, or investigating, any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder. The obligation to indemnify as set forth in this Section 8.2 shall
survive the termination of this Preferred Securities Guarantee.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. SUCCESSORS AND ASSIGNS.
All guarantees and agreements contained in this Preferred Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Preferred Securities then outstanding.
SECTION 9.2. AMENDMENTS.
Except with respect to any changes that do not materially adversely affect
the rights of Holders (in which case no consent of Holders will be required),
this Preferred Securities Guarantee may only be amended with the prior approval
of the Holders of at least a Majority in Liquidation Amount of the Preferred
Securities. The provisions of Article VI of the Trust Agreement with respect to
meetings of Holders of the Preferred Securities apply to the giving of such
approval.
SECTION 9.3. NOTICES.
All notices provided for in this Preferred Securities Guarantee shall be in
writing, duly signed by the party giving such notice, and shall be delivered,
telecopied or mailed by registered or certified mail, as follows:
(a) If given to the Preferred Guarantee Trustee, at the Preferred Guarantee
Trustee's mailing address set forth below (or such other address as the
Preferred Guarantee Trustee may give notice of to the Holders of the Preferred
Securities):
State Street Bank and Trust Company
Two International Place, 4th Floor
Boston, Massachusetts 02110
Attention: Corporate Trust Department
<PAGE> 15
(b) If given to the Guarantor, at the Guarantor's mailing address set forth
below (or such other address as the Guarantor may give notice of to the Holders
of the Preferred Securities):
Abington Bancorp, Inc.
536 Washington Street
Abington, Massachusetts 02351
Attention: Chief Financial Officer
(c) If given to any Holder of Preferred Securities, at the address set forth
on the books and records of the Trust.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
SECTION 9.4. BENEFIT.
This Preferred Securities Guarantee is solely for the benefit of the Holders
of the Preferred Securities and, subject to Section 3.1 (a), is not separately
transferable from the Preferred Securities.
SECTION 9.5. GOVERNING LAW.
THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
This Preferred Securities Guarantee is executed as of the day and year first
above written.
ABINGTON BANCORP, INC.
as Guarantor
-----------------------------------,
By:
--------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
as Preferred Guarantee Trustee
By:
--------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 4.7
AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT AS TO EXPENSES AND LIABILITIES (this "Agreement") dated as of
_____________, 1998, between Abington Bancorp, Inc., a Massachusetts corporation
(the "Company"), and Abington Bancorp Capital Trust, a Delaware business trust
(the "Trust").
RECITALS
WHEREAS, the Trust intends to issue its common securities (the "Common
Securities") to, and receive Debentures from, the Company and to issue and sell
1,100,000 ___% Cumulative Trust Preferred Securities (the "Preferred
Securities") with such powers, preferences and special rights and restrictions
as are set forth in the Amended and Restated Trust Agreement of the Trust dated
as of __________, 1998, as the same may be amended from time to time (the "Trust
Agreement");
WHEREAS, the Company shall directly or indirectly own all of the Common
Securities of the Trust and shall issue the Debentures;
NOW, THEREFORE, in consideration of the purchase by each holder of the
Preferred Securities, which purchase the Company hereby agrees shall benefit the
Company and which purchase the Company acknowledges shall be made in reliance
upon the execution and delivery of this Agreement, the Company, including in its
capacity as holder of the Common Securities, and the Trust hereby agree as
follows:
ARTICLE I
SECTION 1.1. GUARANTEE BY THE COMPANY.
Subject to the terms and conditions hereof, the Company, including in its
capacity as holder of the Common Securities, hereby irrevocably and
unconditionally guarantees to each person or entity to whom the Trust is now or
hereafter becomes indebted or liable (the "Beneficiaries") the full payment when
and as due, of any and all Obligations (as hereinafter defined) to such
Beneficiaries. As used herein, "Obligations" means any costs, expenses or
liabilities of the Trust other than obligations of the Trust to pay to holders
of any Preferred Securities or other similar interests in the Trust the amounts
due such holders pursuant to the terms of the Preferred Securities or such other
similar interests, as the case may be. This Agreement is intended to be for the
benefit of, and to be enforceable by, all such Beneficiaries, whether or not
such Beneficiaries have received notice hereof.
SECTION 1.2. TERM OF AGREEMENT.
This Agreement shall terminate and be of no further force and effect upon
the later of (a) the date on which full payment has been made of all amounts
payable to all holders of all the Preferred Securities (whether upon redemption,
liquidation, exchange or otherwise); and (b) the date on which there are no
Beneficiaries remaining; provided, however, that this Agreement shall continue
to be effective or shall be reinstated, as the case may be, if at any time any
holder of Preferred Securities or any Beneficiary must restore payment of any
sums paid under the Preferred Securities, under any obligation, under the
Preferred Securities Guarantee Agreement dated the date hereof by the Company
and State Street Bank and Trust Company as guarantee trustee, or under this
Agreement for any reason whatsoever. This Agreement is continuing, irrevocable,
unconditional and absolute.
<PAGE> 2
SECTION 1.3. WAIVER OF NOTICE.
The Company hereby waives notice of acceptance of this Agreement and of any
obligation to which it applies or may apply, and the Company hereby waives
presentment, demand for payment, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
SECTION 1.4. NO IMPAIRMENT.
The obligations, covenants, agreements and duties of the Company under this
Agreement shall in no way be affected or impaired by reason of the happening
from time to time of any of the following:
(a) the extension of time for the payment by the Trust of all or any portion
of the obligations or for the performance of any other obligation under, arising
out of, or in connection with, the obligations;
(b) any failure, omission, delay or lack of diligence on the part of the
Beneficiaries to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Beneficiaries with respect to the obligations or any
action on the part of the Trust granting indulgence or extension of any kind; or
(c) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust.
There shall be no obligation of the Beneficiaries to give notice to, or
obtain the consent of, the Company with respect to the happening of any of the
foregoing.
SECTION 1.5. ENFORCEMENT.
A Beneficiary may enforce this Agreement directly against the Company, and
the Company waives any right or remedy to require that any action be brought
against the Trust or any other person or entity before proceeding against the
Company.
ARTICLE II
SECTION 2.1. BINDING EFFECT.
All guarantees and agreements contained in this Agreement shall bind the
successors, assigns, receivers, trustees and representatives of the Company and
shall inure to the benefit of the Beneficiaries.
SECTION 2.2. AMENDMENT.
So long as there remains any Beneficiary or any Preferred Securities of any
series are outstanding, this Agreement shall not be modified or amended in any
manner adverse to such Beneficiary or to the holders of the Preferred
Securities.
SECTION 2.3. NOTICES.
Any notice, request or other communication required or permitted to be
given hereunder shall be given in writing by delivering the same by facsimile
transmission (confirmed by mail), telex, or by registered or certified mail,
addressed as follows (and if so given, shall be deemed given when mailed or upon
receipt of an answer back, if sent by telex):
<PAGE> 3
Abington Bancorp, Inc., 536 Washington Street, Abington, Massachusetts
02351, facsimile no. (781)393-4071, Attention: Chief Financial Officer.
Abington Bancorp Capital Trust, c/o Abington Bancorp, Inc., 536 Washington
Street, Abington, Massachusetts 02351, facsimile no. (781) 393-4071, Attention:
Chief Financial Officer.
SECTION 2.4 This agreement shall be governed by and construed and interpreted in
accordance with the laws of The Commonwealth of Massachusetts (without regard to
conflict of laws principles).
THIS AGREEMENT is executed as of the day and year first above written.
ABINGTON BANCORP, INC.
By: _____________________________________
Name:
Title:
ABINGTON BANCORP CAPITAL TRUST
By: _____________________________________
Name:
Title: Administrative Trustee
<PAGE> 1
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
At or for the three
months ended At or for the year ended
March 31, December 31,
------------------- -------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
INCLUDING INTEREST
ON DEPOSITS:
Earnings:
Earnings before income taxes $1,733 $1,741 $ 7,057 $ 5,672 $ 2,447 $ 4,329 $ 4,085
Fixed charges from below 5,416 4,820 20,329 19,752 18,378 14,430 12,346
------ ------ ------- ------- ------ ------- -------
Earnings $7,149 $6,561 $27,386 $25,424 $20,825 $18,759 $16,431
------ ------ ------- ------- ------ ------- -------
Fixed charges:
Interest expense 5,347 4,764 20,091 19,517 18,222 14,349 12,302
Rent expense 69 56 238 235 156 81 44
Ratio of earnings to fixed charges 1.32 1.36 1.35 1.29 1.13 1.30 1.33
====== ====== ======= ======= ====== ======= =======
EXCLUDING INTEREST ON DEPOSITS:
Earnings:
Earnings before income taxes $1,733 $1,741 $ 7,057 $ 5,672 $ 2,447 $ 4,329 $ 4,085
Fixed charges from below 2,575 2,140 9,272 9,010 8,697 6,917 4,727
------ ------ ------- ------- ------ ------- -------
Earnings $4,308 $3,881 $16,329 $14,682 $11,144 $11,246 $ 8,812
------ ------ ------- ------- ------ ------- -------
Fixed charges:
Interest expense, excluding
interest on deposits 2,506 2,084 9,034 8,775 8,541 6,836 4,683
Rent expense 69 56 238 235 156 81 44
Ratio of earnings to fixed charges 1.67 1.81 1.76 1.63 1.28 1.63 1.86
====== ====== ======= ======= ====== ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-2, of our report dated
January 16, 1998, included in Abington Bancorp Inc.'s Form 10-K for the year
ended December 31, 1997 and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 12, 1998
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
----------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
---------------------
ABINGTON BANCORP, INC.
(Exact name of obligor as specified in its charter)
Massachusetts 04-3334127
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
536 Washington Street, Abington, Massachusetts
(781) 982-3200
(Address of principal executive offices) (Zip Code)
--------------------
% SUBORDINATED DEBENTURES
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST
POWERS. Trustee is authorized to exercise corporate trust
powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Boston Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement
of Eligibility and Qualification of Trustee (Form T-1) filed
with the Registration Statement of Morse Shoe, Inc. (File
No. 22-17940) and is incorporated herein by reference
thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the
trustee to commence business was necessary or issued is on
file with the Securities and Exchange Commission as Exhibit
2 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe,
Inc. (File No. 22-17940) and is incorporated herein by
reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is
on file with the Securities and Exchange Commission as
Exhibit 4 to the Statement of Eligibility and Qualification
of Trustee (Form T-1) filed with the Registration Statement
of Eastern Edison Company (File No. 33-37823) and is
incorporated herein by reference thereto.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR
IS IN DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED
BY SECTION 321(b) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE
PUBLISHED PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING
OR EXAMINING AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 8th day of May, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /S/ E. DECKER ADAMS
--------------------------------
E. DECKER ADAMS
VICE PRESIDENT
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by ABINGTON
BANCORP, INC. of its % SUBORDINATED DEBENTURES, we hereby consent that reports
of examination by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ E. Decker Adams
---------------------------------
E. DECKER ADAMS
VICE PRESIDENT
DATED: MAY 8, 1998
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business December 31, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ................ 2,220,829
Interest-bearing balances ......................................... 10,076,045
Securities ................................................................. 10,373,821
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ............................... 5,124,310
Loans and lease financing receivables:
Loans and leases, net of unearned income .......................... 6,270,348
Allowance for loan and lease losses ............................... 82,820
Allocated transfer risk reserve ................................... 0
Loans and leases, net of unearned income and allowances ........... 6,187,528
Assets held in trading accounts ............................................ 1,241,555
Premises and fixed assets .................................................. 410,029
Other real estate owned .................................................... 100
Investments in unconsolidated subsidiaries ................................. 38,831
Customers' liability to this bank on acceptances outstanding ............... 44,962
Intangible assets .......................................................... 224,049
Other assets ............................................................... 1,507,650
----------
Total assets ............................................................... 37,449,709
==========
LIABILITIES
Deposits:
In domestic offices ............................................... 10,115,205
Noninterest-bearing ...................................... 7,739,136
Interest-bearing ......................................... 2,376,069
In foreign offices and Edge subsidiary ............................ 14,791,134
Noninterest-bearing ...................................... 71,889
Interest-bearing ......................................... 14,719,245
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ............................... 7,603,920
Demand notes issued to the U.S. Treasury and Trading Liabilities ........... 194,059
Trading liabilities ........................................................ 1,036,905
Other borrowed money ....................................................... 459,252
Subordinated notes and debentures .......................................... 0
Bank's liability on acceptances executed and outstanding ................... 44,962
Other liabilities .......................................................... 972,782
Total liabilities .......................................................... 35,218,219
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus .............................. 0
Common stock ............................................................... 29,931
Surplus .................................................................... 444,620
Undivided profits and capital reserves/Net unrealized holding gains (losses) 1,763,076
Cumulative foreign currency translation adjustments ........................ (6,137)
Total equity capital ....................................................... 2,231,490
----------
Total liabilities and equity capital ....................................... 37,449,709
==========
</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<PAGE> 1
EXHIBIT 25.2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
---------------------
ABINGTON BANCORP, INC.
(Exact name of obligor as specified in its charter)
Massachusetts 04-3334127
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
536 Washington Street, Abington, Massachusetts
(781) 982-3200
(Address of principal executive offices) (Zip Code)
--------------------
PREFERRED SECURITIES
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY
AUTHORITY TO WHICH IT IS SUBJECT.
Department of Banking and Insurance of The
Commonwealth of Massachusetts, 100 Cambridge Street,
Boston, Massachusetts.
Board of Governors of the Federal Reserve System,
Washington, D.C., Federal Deposit Insurance
Corporation, Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST
POWERS. Trustee is authorized to exercise corporate trust
powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH
SUCH AFFILIATION.
The obligor is not an affiliate of the trustee or of
its parent, State Street Boston Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF
ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW
IN EFFECT.
A copy of the Articles of Association of the trustee,
as now in effect, is on file with the Securities and
Exchange Commission as Exhibit 1 to Amendment No. 1
to the Statement of Eligibility and Qualification of
Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and
is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO
COMMENCE BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF
ASSOCIATION.
A copy of a Statement from the Commissioner of Banks
of Massachusetts that no certificate of authority for
the trustee to commence business was necessary or
issued is on file with the Securities and Exchange
Commission as Exhibit 2 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of
Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE
CORPORATE TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED
IN THE DOCUMENTS SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to
exercise corporate trust powers is on file with the
Securities and Exchange Commission as Exhibit 3 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference
thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR
INSTRUMENTS CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in
effect, is on file with the Securities and Exchange
Commission as Exhibit 4 to the Statement of
Eligibility and Qualification of Trustee (Form T-1)
filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is
incorporated herein by reference thereto.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE
OBLIGOR IS IN DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES
REQUIRED BY SECTION 321(b) OF THE ACT.
The consent of the trustee required by Section 321(b)
of the Act is annexed hereto as Exhibit 6 and made a
part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE
PUBLISHED PURSUANT TO LAW OR THE REQUIREMENTS OF ITS
SUPERVISING OR EXAMINING AUTHORITY.
A copy of the latest report of condition of the
trustee published pursuant to law or the requirements
of its supervising or examining authority is annexed
hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 8th day of May, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /s/ E. Decker Adams
--------------------------------
E. DECKER ADAMS
VICE PRESIDENT
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by ABINGTON
BANCORP, INC. of its Preferred Securities, we hereby consent that reports of
examination by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ E. Decker Adams
-----------------------------------
E. DECKER ADAMS
VICE PRESIDENT
DATED: MAY 8, 1998
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business December 31, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
Dollars
------------
ASSETS
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ................ 2,220,829
Interest-bearing balances ......................................... 10,076,045
Securities ................................................................. 10,373,821
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ............................... 5,124,310
Loans and lease financing receivables:
Loans and leases, net of unearned income .......................... 6,270,348
Allowance for loan and lease losses ............................... 82,820
Allocated transfer risk reserve ................................... 0
Loans and leases, net of unearned income and allowances ........... 6,187,528
Assets held in trading accounts ............................................ 1,241,555
Premises and fixed assets .................................................. 410,029
Other real estate owned .................................................... 100
Investments in unconsolidated subsidiaries ................................. 38,831
Customers' liability to this bank on acceptances outstanding ............... 44,962
Intangible assets .......................................................... 224,049
Other assets ............................................................... 1,507,650
----------
Total assets ............................................................... 37,449,709
==========
LIABILITIES
Deposits:
In domestic offices ............................................... 10,115,205
Noninterest-bearing ...................................... 7,739,136
Interest-bearing ......................................... 2,376,069
In foreign offices and Edge subsidiary ............................ 14,791,134
Noninterest-bearing ...................................... 71,889
Interest-bearing ......................................... 14,719,245
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ............................... 7,603,920
Demand notes issued to the U.S. Treasury and Trading Liabilities ........... 194,059
Trading liabilities ........................................................ 1,036,905
Other borrowed money ....................................................... 459,252
Subordinated notes and debentures .......................................... 0
Bank's liability on acceptances executed and outstanding ................... 44,962
Other liabilities .......................................................... 972,782
Total liabilities .......................................................... 35,218,219
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus .............................. 0
Common stock ............................................................... 29,931
Surplus .................................................................... 444,620
Undivided profits and capital reserves/Net unrealized holding gains (losses) 1,763,076
Cumulative foreign currency translation adjustments ........................ (6,137)
Total equity capital ....................................................... 2,231,490
----------
Total liabilities and equity capital ....................................... 37,449,709
----------
</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<PAGE> 1
EXHIBIT 25.3
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
---------------------
ABINGTON BANCORP, INC.
(Exact name of obligor as specified in its charter)
Massachusetts 04-3334127
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
536 Washington Street, Abington, Massachusetts
(781) 982-3200
(Address of principal executive offices) (Zip Code)
--------------------
GUARANTEE
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System,
Washington, D.C., Federal Deposit Insurance Corporation,
Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Boston Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF
ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement
of Eligibility and Qualification of Trustee (Form T-1) filed
with the Registration Statement of Morse Shoe, Inc. (File
No. 22-17940) and is incorporated herein by reference
thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the
trustee to commence business was necessary or issued is on
file with the Securities and Exchange Commission as Exhibit
2 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe,
Inc. (File No. 22-17940) and is incorporated herein by
reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is
on file with the Securities and Exchange Commission as
Exhibit 4 to the Statement of Eligibility and Qualification
of Trustee (Form T-1) filed with the Registration Statement
of Eastern Edison Company (File No. 33-37823) and is
incorporated herein by reference thereto.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS
IN DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(b) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 8th day of May, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /s/ E. Decker Adams
-------------------------------------------
E. DECKER ADAMS
VICE PRESIDENT
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by ABINGTON
BANCORP, INC. of its Guarantee, we hereby consent that reports of examination by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ E. Decker Adams
-------------------------------
E. DECKER ADAMS
VICE PRESIDENT
DATED: MAY 8, 1998
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business December 31, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ................ 2,220,829
Interest-bearing balances ......................................... 10,076,045
Securities ................................................................. 10,373,821
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ............................... 5,124,310
Loans and lease financing receivables:
Loans and leases, net of unearned income .......................... 6,270,348
Allowance for loan and lease losses ............................... 82,820
Allocated transfer risk reserve ................................... 0
Loans and leases, net of unearned income and allowances ........... 6,187,528
Assets held in trading accounts ............................................ 1,241,555
Premises and fixed assets .................................................. 410,029
Other real estate owned .................................................... 100
Investments in unconsolidated subsidiaries ................................. 38,831
Customers' liability to this bank on acceptances outstanding ............... 44,962
Intangible assets .......................................................... 224,049
Other assets ............................................................... 1,507,650
----------
Total assets ............................................................... 37,449,709
==========
LIABILITIES
Deposits:
In domestic offices ............................................... 10,115,205
Noninterest-bearing ...................................... 7,739,136
Interest-bearing ......................................... 2,376,069
In foreign offices and Edge subsidiary ............................ 14,791,134
Noninterest-bearing ...................................... 71,889
Interest-bearing ......................................... 14,719,245
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ............................... 7,603,920
Demand notes issued to the U.S. Treasury and Trading Liabilities ........... 194,059
Trading liabilities ........................................................ 1,036,905
Other borrowed money ....................................................... 459,252
Subordinated notes and debentures .......................................... 0
Bank's liability on acceptances executed and outstanding ................... 44,962
Other liabilities .......................................................... 972,782
Total liabilities .......................................................... 35,218,219
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus .............................. 0
Common stock ............................................................... 29,931
Surplus .................................................................... 444,620
Undivided profits and capital reserves/Net unrealized holding gains (losses) 1,763,076
Cumulative foreign currency translation adjustments ........................ (6,137)
Total equity capital ....................................................... 2,231,490
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Total liabilities and equity capital ....................................... 37,449,709
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</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
